AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 1996
1933 ACT FILE NO. 33-
1940 ACT FILE NO. 811-8150
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
PRE-EFFECTIVE AMENDMENT NO.
/ /
POST-EFFECTIVE AMENDMENT NO.
/ /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
X
AMENDMENT NO. 3
-------------------
SCHRODER ASIAN GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
C/O SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
787 SEVENTH AVENUE, 34TH FLOOR
NEW YORK, NEW YORK 10019
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code))
Registrant's Telephone Number, including Area Code: (212) 641-3800
-------------------
LAURA E. LUCKYN-MALONE
C/O SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
787 SEVENTH AVENUE, 34TH FLOOR
NEW YORK, NEW YORK 10019
(Name and Address (Number, Street, City, State, Zip Code) of Agent for Service)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MARCIA L. MACHARG, ESQ. THOMAS A. HALE, ESQ.
DEBEVOISE & PLIMPTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM
555 13TH STREET, N.W. 333 WEST WACKER DRIVE
WASHINGTON, D.C. 20004 CHICAGO, ILLINOIS 60606
</TABLE>
-------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box. / /
It is proposed that this filing will become effective pursuant to Section
8(c).
-------------------
CALCULATION OF THE REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 3,267,850 shares $13.0625 $42,686,290.625 $14,719.41
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on a
discount from the average of the high and low sales prices for the Fund's
Common Stock reported on the New York Stock Exchange Composite Tape on
February 21, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
SCHRODER ASIAN GROWTH FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PART A: THE PROSPECTUS
<TABLE>
<CAPTION>
FORM N-2
ITEM NUMBER CAPTION PROSPECTUS/SAI
- - ----------- --------------------------------------- ---------------------------------------
<C> <S> <C>
1 Outside Front Cover.................... Outside Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover
Page................................... Cover Page
3 Fee Table and Synopsis................. Expense Information
4 Financial Highlights................... Financial Highlights
5 Plan of Distribution................... Cover Page; The Offer; Distribution
Arrangements
6 Selling Shareholders................... Not Applicable
7 Use of Proceeds........................ Use of Proceeds
8 General Description of the
Registrant............................. Cover Page; The Offer; The Fund;
Investment Objective and Policies;
Investment in Asia; Risk Factors and
Special Considerations; Common Stock;
Investment Restrictions
9 Management............................. Management of the Fund; Investment
Advisory and Other Services; Common
Stock; Custodian, Transfer Agent,
Dividend Paying Agent and Registrar;
Portfolio Transactions and Brokerage
10 Capital Stock, Long-Term Debt, and
Other Securities....................... Dividends and Distributions; Dividend
Reinvestment Plan; Taxation; Common
Stock
11 Defaults and Arrears on Senior
Securities............................. Not Applicable
12 Legal Proceedings...................... Not Applicable
13 Table of Contents of the Statement of
Additional Information................. Table of Contents of the Statement of
Additional Information
PART B: STATEMENT OF ADDITIONAL INFORMATION
14 Cover Page............................. Cover Page of Statement of Additional
Information
15 Table of Contents...................... Table of Contents
16 General Information and History........ Not Applicable
17 Investment Objective and Policies...... Investment Objective and Policies;
Investment Restrictions
18 Management............................. Management of the Fund
19 Control Persons and Principal Holders
of Securities........................ Management of the Fund
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-2
ITEM NUMBER CAPTION PROSPECTUS/SAI
- - ----------- --------------------------------------- ---------------------------------------
<C> <S> <C>
20 Investment Advisory and Other
Services............................... Custodian, Transfer Agent, Divident
Paying Agent and Registrar; Experts;
Management of the Fund
21 Brokerage Allocation and Other
Practices.............................. Portfolio Transactions and Brokerage
22 Tax Status............................. Taxation
23 Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
2
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 1996
SCHRODER ASIAN GROWTH FUND, INC.
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES
-------------------
Schroder Asian Growth Fund, Inc. (the "Fund") is issuing to its shareholders
of record (the "Record Date Shareholders") as of the close of business on ,
1996 (the "Record Date") non-transferable rights ("Rights") entitling the
holders thereof to subscribe for an aggregate of shares ("Shares") of the
Fund's common stock (the "Common Stock") at the rate of one Share of Common
Stock for every Rights held (the "Offer"). Record Date Shareholders will
receive one Right for each whole share of Common Stock held on the Record Date.
Shareholders who fully exercise their Rights will be entitled to subscribe for
additional Shares of Common Stock pursuant to the Over-Subscription Privilege as
described herein. The Fund may increase the number of Shares of Common Stock
subject to subscription by up to [ ]% of the Shares, or Shares, for an
aggregate total of Shares. Fractional Shares will not be issued upon the
exercise of Rights. The Rights are non-transferable and will not be admitted for
trading on the New York Stock Exchange ("NYSE") or any other exchange and,
accordingly, may not be purchased or sold. See "The Offer-- Non-Transferability
of Rights." The Board of Directors of the Fund has not yet approved the Offer.
The Board of Directors has approved the filing of a registration statement of
which this Prospectus constitutes a part, subject to the Board's further review
and approval of the Offer. IN THE EVENT THE BOARD OF DIRECTORS APPROVES THE
OFFER, THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE
[ % OF THE LOWER OF (i) THE AVERAGE OF THE LAST REPORTED SALE PRICE OF A
SHARE OF THE FUND'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THE DATE OF
THE EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON THE FOUR PRECEDING
BUSINESS DAYS AND (ii) THE NET ASSET VALUE PER SHARE OF THE FUND'S COMMON STOCK
AS OF THE CLOSE OF BUSINESS ON THE PRICING DATE.]
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996 (THE
"EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.
(Cover continued on the following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
Estimated Estimated
Subscription Estimated Proceeds to
Price(1) Sales Load(2) Fund(3)(4)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total Maximum(5)....................... $ $ $
</TABLE>
(1) Estimated on the basis of % of the closing sale price per share of Common
Stock on the NYSE on , 1996. See "The Offer--Subscription Price."
(2) In connection with the Offer, PaineWebber Incorporated (the "Dealer
Manager") and other broker-dealers soliciting the exercise of Rights will
receive soliciting fees equal to % of the Subscription Price per Share for
each Share issued pursuant to the exercise of the Rights and the
Over-Subscription Privilege. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory services in connection with the Offer
equal to % of the Subscription Price per Share for each Share issued upon
exercise of the Rights and pursuant to the Over-Subscription Privilege and
has agreed to indemnify the Dealer Manager against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). These fees will be borne by all of the Fund's
shareholders, including those shareholders who do not exercise their rights.
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$ , including an aggregate of up to $ to be paid to the Dealer
Manager as reimbursement for its expenses.
(4) The funds received by check prior to the final due date of this Offer will
be deposited into a segregated interest bearing account (which interest will
be paid to the Fund) pending proration and distribution of Shares.
(5) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at its discretion
increase the number of Shares subject to subscription by up to [ %] of
the Shares offered hereby. If the Fund increases the number of Shares
subject to subscription by [ %], the aggregate maximum Estimated
Subscription Price, Estimated Sales Load and Estimated Proceeds to Fund will
be $ , $ and $ , respectively.
-------------------
PAINEWEBBER INCORPORATED
-------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE BOUGHT OR SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(Continued from the previous page)
In the event that the Board of Directors of the Fund approves the Offer, the
Fund is expected to announce the Offer [after the close] of trading on the NYSE
on , 1996. The outstanding shares of Common Stock trade on that exchange
under the symbol "SHF." The Shares issued upon the exercise of Rights and
pursuant to the Over-Subscription Privilege will be listed for trading on the
NYSE, subject to notice of official issuance. The net asset value per share of
Common Stock at the close of business on , 1996 (the last date the Fund
calculated its net asset value prior to the announcement of the Offer) and
, 1996 (the last date the Fund calculated its net asset value prior to the
date of this Prospectus) was $ and $ , respectively, and the last
reported sale price of a share of the Fund's Common Stock on the NYSE on those
dates was $ and $ , respectively.
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not occurred. In addition, because the Subscription
Price per Share will be less than the net asset value per share and because the
Fund will incur expenses in connection with the Offer, the Offer will result in
a dilution of net asset value per share for all shareholders. Such dilution will
disproportionately affect non-exercising shareholders. If the Subscription Price
per Share were to be substantially less than the current net asset value per
share, such dilution would be substantial. Shareholders will have no right to
rescind their subscriptions after receipt of their payment for Shares by the
Subscription Agent. See "The Offer-- Dilution and the Effect of
Non-Participation in the Offer" and "Risk Factors and Special
Considerations--Special Considerations Relating to the Offer." Since the
commencement of the Fund's operations, shares of Common Stock have usually
traded at a discount to net asset value per share. For the trading history of
the Fund, see "Market and Net Asset Value Information."
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and should retain it for future reference. A Statement of
Additional Information dated , 1996 (the "SAI") containing additional
information about the Fund has been filed with the U.S. Securities and Exchange
Commission (the "Commission") and is incorporated by reference in its entirety
into this Prospectus. A copy of the SAI, the table of contents of which appears
on page of this Prospectus, may be obtained without charge by calling the
Fund's Information Agent, [ ], at (800) . All questions and inquiries
relating to the Offer should be directed to the Information Agent.
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is to seek long-term capital appreciation through
investment primarily in equity securities of Asian Companies (as defined in this
Prospectus). Asian countries in which the Fund can invest include China, Hong
Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan and Thailand. Under normal market conditions, the
Fund will invest at least 65% of its total assets in equity securities of Asian
Companies. There can be no assurance that the Fund's investment objective will
be achieved. Due to the risks inherent in international investments generally,
the Fund should be considered as a vehicle for investing a portion of an
investor's assets in non-U.S. securities markets and not as a complete
investment program. Investment in non-U.S. securities involves certain risks and
considerations which are not normally involved in investments in securities of
U.S. companies. Investment in the Fund should be considered speculative. See
"Investment Objective and Policies" and "Risk Factors and Special
Considerations."
Schroder Capital Management International Inc. (the "Investment Adviser"), a
wholly-owned indirect subsidiary of Schroders plc, serves as investment adviser
to the Fund. The Fund's administrator is Princeton Administrators, L.P. The
address of the Fund is c/o Schroder Capital Management International Inc., 787
Seventh Avenue, 34th Floor, New York, New York 10019 and its telephone number is
(212) 641-3800.
In this Prospectus, unless otherwise specified, all references to "billion"
are to one thousand million, to "million" are to one thousand thousand, and to
"Dollars," "US$" or "$" are to United States Dollars. Reference should be made
to "Risk Factors and Special Considerations--Non-U.S. Currency and Exchange
Rates" for a better understanding of the effect on the Fund of the fluctuation
of the exchange rate between the Dollar and non-U.S. currencies and the
significance, in Dollar terms, of amounts set forth in this Prospectus in
non-U.S. currency terms and of amounts in comparison based on, or computed by
reference to, such currency.
Certain numbers in this Prospectus have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many of the tables presented may not precisely
equal the totals shown.
<PAGE>
EXPENSE INFORMATION
The following table sets forth certain fees and expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
<S> <C>
Sales Load (as a percentage of the Subscription Price)(1)(2)......%
Dividend Reinvestment Plan Fees................................... (3)
</TABLE>
Annual Expenses (as a percentage of average net assets attributable to
Common Stock): Expenses paid by the Fund before it distributes its net
investment income, expressed as a percentage of the Fund's average net assets
(based on estimated expenses for the fiscal year ending October 31, 1995):
<TABLE>
<CAPTION>
<S> <C>
Management Fees...................................................%
Other Expenses(4).................................................%
------
Total Annual Fund Operating Expenses..............................%
------
------
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: (5) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Based on the level of total Fund operating expenses listed
above, the total expenses relating to a $1,000 investment
in the Fund at the end of each period, assuming a 5%
annual return, are listed below........................... $ $ $ $
</TABLE>
- - ------------
(1) The Dealer Manager and the other broker-dealers soliciting the exercise of
Rights will receive solicitation fees payable by the Fund equal to % of
the Subscription Price per Share. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory services in connection with the Offer
equal to % of the aggregate Subscription Price. These fees will be borne
by all of the Fund's shareholders, including those shareholders who do not
exercise their Rights.
(2) Does not include expenses of the Fund incurred in connection with the Offer,
estimated at $ .
(3) There is no charge to participants by the Fund for reinvesting dividends and
capital gains distributions (the Plan Agent's fees are paid by the Fund).
Participants are charged a pro rata share of brokerage commissions on all
open market purchases. See "Dividends and Distributions; Dividend
Reinvestment Plan."
(4) Based upon estimated amounts for the current fiscal year. For more complete
descriptions of certain of the Fund's costs and expenses, see "Investment
Advisory and Other Services."
(5) The Example assumes reinvestment of all dividends and distributions at net
asset value, reflects all recurring and non-recurring fees including the
Sales Load and other expenses of the Fund incurred in connection with the
Offer, assumes that the percentage amounts listed under "Annual Expenses"
remain the same each year, and assumes that (i) all of the Rights are
exercised and (ii) the Fund does not increase the number of Shares subject
to subscription pursuant to the Over-Subscription Privilege. The Example
also reflects payment of the % Sales Load on the entire $1,000
investment.
The purpose of the foregoing table and example is to assist Rights holders
in understanding the various costs and expenses that an investor in the Fund
bears, directly or indirectly. The example should not be considered a
representation of past or future expenses or return. Actual Fund expenses and
return vary from year to year and may be higher or lower than those shown. In
addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Fund's Dividend
Reinvestment Plan may receive shares issued at a price or value different from
net asset value. See "Dividends and Distributions; Dividend Reinvestment Plan."
3
<PAGE>
FINANCIAL HIGHLIGHTS
This table presents selected data for a share of the Fund's Common Stock
outstanding throughout each period and other performance information derived
from the Fund's financial statements and from market price data, which except as
indicated have been audited by Coopers & Lybrand L.L.P., independent
accountants. This information should be read in conjunction with the Financial
Statements and Notes thereto as of October 31, 1995 and the related Report of
Independent Accountants which appear in the SAI.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1993
THREE MONTHS FOR THE FISCAL (COMMENCEMENT OF
ENDED YEAR ENDED OPERATIONS) TO
PER SHARE OPERATING PERFORMANCE JANUARY 31, 1996* OCTOBER 31, 1995 OCTOBER 31, 1994
- - ------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 12.62 $ 13.84 $ 14.01**
Net Investment Income (Loss)............. (0.02) 0.02 (0.01)
Net Realized and Unrealized Gain (Loss)
on Investment and Non-U.S. Currency
Transactions............................... 1.41 (1.24) (0.16)
-------- ---------------- --------
Total From Investment Operations........... 1.39 (1.22) (0.17)
Net Asset Value, End of Period............. $ 14.01 $ 12.62 $ 13.84
-------- ---------------- --------
-------- ---------------- --------
Market Value, End of Period................ $ 13.50 $ 11.125 $ 12.00
-------- ---------------- --------
-------- ---------------- --------
TOTAL INVESTMENT RETURN
Per Share Market Value (%)................. 21.35% (7.29)% (20.00)%
-------- ---------------- --------
-------- ---------------- --------
Per Share Net Asset Value (%)(a)........... 11.01% (8.82)% (1.21)%
-------- ---------------- --------
-------- ---------------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period ($ millions)..... $274.62 $ 247.49 $ 271.42
Ratio of Operating Expenses to Average Net
Assets (%)................................. 1.58% 1.65% 1.59%***
Ratio of Net Investment Income (Loss) to
Average Net Assets (%)..................... (0.80)% 0.12% (0.10)%***
Portfolio Turnover Rate (%)................ 11% 66.79% 19.76%
</TABLE>
- - ------------
* Unaudited.
** Net of $.09 of offering expenses.
*** Annualized.
(1) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of each period reported. Dividends and distributions, if any, are assumed
for the purposes of this calculation, to be reinvested at prices obtained
under the Fund's dividend reinvestment plan. Total investment return does
not reflect sales loads or brokerage commissions. Generally, total
investment return based on net asset value will be higher than total
investment return based on market value in periods where there is an
increase in the discount or decrease in the premium of the market value to
the net asset value from the beginning to the end of such periods.
Conversely, total investment return based on net asset value will be lower
than total investment return based on market value in periods where there
is a decrease in the discount or an increase in the premium of the market
value to the net asset value from the beginning to the end of such periods.
4
<PAGE>
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of the Fund has not yet approved the Offer. The Board
of Directors has approved the filing of a registration statement of which this
Prospectus constitutes a part, subject to the Board's further review and
approval of the Offer. There can be no guarantee that the Board of Directors
will approve the Offer, and accordingly no guarantee that the Offer will be
made.
In deciding whether to approve the Offer, the Board of Directors will
consider, among other things, whether it would be in the best interests of the
Fund and its shareholders to increase the assets of the Fund available for
investment, whether the Fund could use such additional assets to take advantage
more fully of available existing and future investment opportunities consistent
with the Fund's investment objective, the likelihood that such opportunities
will arise, and the extent to which the Offer would enable the Fund to make use
of such opportunities without having to sell portfolio securities that the
Investment Adviser believes should be held by the Fund. The Board of Directors
will also take into account that a well-subscribed rights offering could
marginally reduce the Fund's expense ratio, and could increase liquidity on the
NYSE, where the Fund's shares are listed and traded. The Board of Directors will
consider the Investment Adviser's view that additional assets would permit the
Fund to make portfolio rebalancing adjustments without the expense of selling
securities in its present portfolio. The Board of Directors will not approve the
Offer unless the Board of Directors determines that the Offer would result in a
net benefit to existing shareholders.
The Board of Directors will also consider the expected impact of the Offer
on the discount of the market price per share of the Fund to the net asset value
per share of the Fund. The Board of Directors has previously determined that it
would be in the best interests of shareholders of the Fund to take action to
attempt to reduce or eliminate any such discount. Specifically, the Board of
Directors has committed to conduct an annual tender offer for shares beginning
in the first quarter of calendar year 1997 if the shares of the Fund trade
during specified periods at a discount of 3% or more to net asset value per
share. Any such tender offer will be at a price equal to net asset value per
share. See "Annual Tender Offers and Repurchases of Shares." The Offer may have
the effect of increasing the level of the discount. The Fund cannot predict what
the level of the discount may be beginning in the first quarter of calendar year
1997, or whether the Offer will have an effect on such discount.
The Investment Adviser will benefit from the Offer because its fees are
based on the average weekly net assets of the Fund, which will increase as a
result of the Offer. It is not possible to state precisely the amount of
additional compensation the Investment Adviser will receive as a result of the
Offer, because it is not known how many Shares will be subscribed for and
because the proceeds of the Offer will be invested in additional portfolio
securities, which will fluctuate in value. See "Investment Advisory and Other
Services--The Investment Advisory Agreement."
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which may
or may not be similar to the Offer. Any such future rights offering will be made
in accordance with the Investment Company Act of 1940 (the "1940 Act").
5
<PAGE>
TERMS OF THE OFFER
The Fund is issuing non-transferable Rights to Record Date Shareholders to
subscribe for an aggregate of Shares ( Shares if the Fund increases
the number of Shares available pursuant to the Over-Subscription Privilege).
Each shareholder is being issued one Right for each whole share of Common Stock
held on the Record Date. The Rights entitle the holders thereof to subscribe for
one Share for every Rights held. Fractional Shares will not be issued upon
the exercise of Rights. As fractional Shares will not be issued, shareholders
who receive fewer than [ ] Rights or have fewer than [ ] Rights
remaining will be unable to purchase Shares upon the exercise of such Rights and
will not be entitled to receive any cash in lieu thereof. Such shareholders may
request Shares pursuant to the Over-Subscription Privilege. Rights may be
exercised at any time during the Subscription Period, which commences on
, 1996, and ends at 5:00 p.m., New York City time, on ,
1996 (unless extended by the Fund). A shareholder's right to acquire during the
Subscription Period at the Subscription Price one Share for every [ ]
Rights held is hereinafter referred to as the "Primary Subscription."
Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder pursuant to the Primary Subscription will be entitled to request
additional Shares at the Subscription Price pursuant to the terms of the Offer
(the "Over-Subscription Privilege") (as described below). Shares available, if
any, pursuant to the Over-Subscription Privilege are subject to allotment and
may be subject to increase, as is more fully discussed below under
"Over-Subscription Privilege." For purposes of determining the maximum number of
Shares a shareholder may acquire pursuant to the Offer, broker-dealers whose
Shares are held of record by Cede & Co. ("Cede"), the nominee for The Depository
Trust Company, or by any other depository or nominee, will be deemed to be the
holders of the Rights that are issued to Cede or such other depository or
nominee on their behalf. See "Method of Exercise of Rights" below.
Record Date Shareholders that subscribe for Shares will have no right to
rescind their subscriptions after receipt of their payment for Shares by the
Subscription Agent, except under the circumstances described below under "Notice
of Net Asset Value Decline; Extending the Expiration Date."
OVER-SUBSCRIPTION PRIVILEGE
To the extent shareholders do not exercise all Rights issued to them
pursuant to the Primary Subscription, any underlying Shares represented by such
Rights will be offered by means of the Over-Subscription Privilege to
shareholders who have exercised all the Rights issued to them and who desire to
purchase additional Shares at the Subscription Price. Only shareholders who
exercise all such Rights issued to them may indicate on the Subscription
Certificate (as defined below) the number of additional Shares desired pursuant
to the Over-Subscription Privilege. If sufficient Shares remain after completion
of the Primary Subscription, all over-subscription requests will be honored in
full. If sufficient Shares are not available to honor all over-subscription
requests, the Fund may, at the discretion of the Board of Directors, issue up to
an additional % of the Shares available pursuant to the Offer in order to
cover such over-subscription requests. Regardless of whether the Fund issues the
additional Shares, to the extent Shares are not available to honor all
over-subscription requests, the available Shares will be allocated among those
who over-subscribe based on the number of Rights originally issued to them by
the Fund, so that the number of Shares allocated to shareholders who subscribe
pursuant to the Over-Subscription Privilege will generally be in proportion to
the number of Shares held by them on the
6
<PAGE>
Record Date. The allocation process may involve a series of allocations in order
to assure that the total number of Shares available for over-subscription
requests is distributed on a pro rata basis.
The Fund will not offer or sell any Shares that are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
SUBSCRIPTION PRICE
[The Subscription Price per Share for the Shares to be issued pursuant to
the Offer will be % of the lower of (a) the average of the last reported sale
price of a share of the Fund's Common Stock on the NYSE on the date of the
expiration of the Offer (the "Pricing Date") and on the four preceding business
days and (b) the net asset value per share as of the close of business on the
Pricing Date. For example, if the average of the last reported sale price on the
NYSE on the Pricing Date and on the four preceding business days of a share of
the Fund's Common Stock is $12.00, and the net asset value is $10.00, the
Subscription Price will be $ ( % of $10.00). If, however, the
average of the last reported sale price of a share on that exchange on the
Pricing Date and on the four preceding business days is $12.00, and the net
asset value as of the close of business on the Pricing Date is $14.00, the
Subscription Price will be $ ( % of $12.00).]
The Fund is expected to announce the Offer [after the close of trading] on
the NYSE on , 1996. The outstanding shares of Common Stock trade on that
exchange under the symbol "SHF." The Shares offered hereby will also be listed
for trading on the NYSE, subject to notice of official issuance. The net asset
value per share of Common Stock at the close of business on , 1996
(the last date the Fund calculated its net asset value prior to the announcement
of the Offer) and , 1996 (the last date the Fund calculated its net
asset value prior to the date of this Prospectus) was $ and $ ,
respectively, and the last reported sale price of a share of the Fund's Common
Stock on the NYSE on those dates was $ and $ , respectively. On
, 1996 the Fund's Common Stock was trading at a [premium/discount] to
its net asset value.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the NYSE or any other
exchange. However, the Shares issued pursuant to the exercise of Rights and the
Over-Subscription Privilege will be authorized for listing on the NYSE, subject
to notice of official issuance.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on ,
1996, the Expiration Date (unless extended by the Fund). The Rights will expire
on the Expiration Date and thereafter may not be exercised. Since the Expiration
Date and the Pricing Date will be the same date, Shareholders who decide to
acquire Shares in the Primary Subscription or pursuant to the Over-Subscription
Privilege will not know when they make such decision the purchase price of such
Shares. Any extension of the Offer will be followed as promptly as practicable
by announcement thereof. Such announcement shall be issued no later than 9:00
a.m., New York City time, on the next business day following the previously
scheduled Expiration Date. Without limiting the manner in which the Fund may
choose to
7
<PAGE>
make such announcement, the Fund will not, unless otherwise required by law,
have any obligation to publish, advertise or otherwise communicate any such
announcement other than by making a release to the Dow Jones News Service or
such other means of announcement as the Fund deems appropriate.
NOTICE OF NET ASSET VALUE DECLINE; EXTENDING THE EXPIRATION DATE
The Fund, as required by the Commission's registration form, has undertaken
to suspend the Offer until it amends this Prospectus if, subsequent to the
effective date of the Fund's Registration Statement on Form N-2 (the
"Registration Statement"), the Fund's net asset value declines more than 10%
from its net asset value as of that date. Accordingly, the Fund will notify
Record Date Shareholders of any such decline and thereby permit them to cancel
their exercise of Rights prior to the extended expiration date.
METHOD OF EXERCISE OF RIGHTS
The Rights are evidenced by subscription certificates ("Subscription
Certificates"), which will be mailed to Record Date Shareholders, except as
discussed below under "Foreign Restrictions." If a shareholder's shares are held
by Cede or any other depository or nominee on his or her behalf, the
Subscription Certificates will be mailed to Cede or such depository or nominee.
Rights may be exercised by completing and signing the Subscription Certificate
which accompanies this Prospectus and mailing or otherwise delivering it to the
Subscription Agent at one of the addresses set forth below together with payment
for the Shares as described below under "Payment for Shares." Rights may also be
exercised by contacting your broker, banker or trust company, which can arrange,
on your behalf, to submit a notice guaranteeing delivery of payment and of a
properly completed Subscription Certificate (a "Notice of Guaranteed Delivery").
A fee may be charged for this service. As fractional Shares will not be issued,
shareholders who receive, or who have remaining, fewer than [ ] Rights will
not be able to purchase any Shares upon the exercise of such Rights, although
such shareholders may subscribe for Shares pursuant to the Over-Subscription
Privilege. Completed Subscription Certificates or Notices of Guaranteed Delivery
must be received by the Subscription Agent prior to 5:00 p.m., New York City
time, on the Expiration Date at one of the offices of the Subscription Agent at
one of the addresses set forth below under "Subscription Agent."
Shareholders Who Are Registered Record Owners. Record Date Shareholders can
choose between either option set forth under "Payment for Shares" below. If a
Record Date Shareholder chooses option (2) under "Payment for Shares," an
additional fee may be charged by the firm guaranteeing delivery for this
service. If time is of the essence, option (2) will permit delivery of the
Subscription Certificate and payment after the Expiration Date.
Shareholders Whose Shares Are Held By A Nominee. Shareholders whose shares
are held by a nominee, such as a broker or trustee, must contact that nominee to
exercise their Rights. In that case, the nominee will complete the Subscription
Certificate on behalf of the investor and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.
Nominees. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete
8
<PAGE>
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment described under "Payment for Shares" below.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose addresses are outside the United States (for these purposes the United
States includes its territories and possessions and the District of Columbia).
The Rights to which those Subscription Certificates relate will be held by the
Subscription Agent for such shareholders' accounts until instructions are
received to exercise the Rights, subject to applicable law. If no instructions
are received prior to the Expiration Date, such Rights will expire.
SUBSCRIPTION AGENT
The Subscription Agent is [ ], which will receive, for its
administrative, processing, invoicing and other services as Subscription Agent,
a fee estimated to be $ plus reimbursement for its out-of-pocket
expenses related to the Offer. Questions regarding the Subscription Certificates
should be directed to [Name of Subscription Agent, address, telephone].
Shareholders may also consult their brokers or nominees for information. Signed
subscription certificates must be sent to [The Subscription Agent] by one of the
methods described below. Subscription Certificates or Notices of Guaranteed
Delivery must be received prior to 5:00 p.m., New York City time, on the
Expiration Date. Alternatively, if using a Notice of Guaranteed Delivery, it may
be sent by facsimile to ( ) , with the original delivered promptly to
any of the addresses listed.
(1) BY FIRST CLASS MAIL:
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
(3) BY HAND:
(4) BY FACSIMILE:
FOR NOTICE OF GUARANTEED DELIVERY ONLY
( ) -
Confirm facsimile by telephone to:
( ) -
DELIVERY BY METHODS OTHER THAN THOSE STATED ABOVE WILL NOT CONSTITUTE VALID
DELIVERY.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
[ ]
[Address and phone]
Shareholders may also contact their brokers or nominees for information with
respect to the Offer.
9
<PAGE>
The Information Agent will receive a fee estimated to be $ plus
reimbursement for its out-of-pocket expenses related to the Offer.
PAYMENT FOR SHARES
Record Date Shareholders who acquire Shares during the Primary Subscription
or pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) Payment by the Expiration Date. A Record Date Shareholder can send
the Subscription Certificate, together with payment for the Shares acquired
in the Primary Subscription and for additional Shares requested pursuant to
the Over-Subscription Privilege, to the Subscription Agent, calculating the
total payment on the basis of an estimated Subscription Price of $
per Share. To be accepted, such payment, together with the executed
Subscription Certificate, must be received by the Subscription Agent at one
of the Subscription Agent's offices at the addresses set forth above prior
to 5:00 p.m., New York City time, on the Expiration Date. A PAYMENT PURSUANT
TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK
DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO SCHRODER
ASIAN GROWTH FUND, INC. AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. BECAUSE
UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR,
SHAREHOLDERS ARE STRONGLY URGED TO PAY, OR TO ARRANGE FOR PAYMENT, BY MEANS
OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
(2) Notice of Guaranteed Delivery. Alternatively, subscription
instructions will be accepted by the Subscription Agent if, prior to 5:00
p.m., New York City time, on the Expiration Date, the Subscription Agent has
received a Notice of Guaranteed Delivery by facsimile or otherwise from a
bank, trust company, or NYSE member guaranteeing delivery to the
Subscription Agent of (i) payment of the Estimated Subscription Price of
$ per Share for the Shares subscribed for during the Primary Subscription
and any additional Shares subscribed for pursuant to the Over-Subscription
Privilege, and (ii) a properly completed and executed Subscription
Certificate. A fee may be charged for this service. The Subscription Agent
will not honor a Notice of Guaranteed Delivery if a properly completed and
executed Subscription Certificate is not received by the Subscription Agent
by the close of business on , 1996, the third business day after the
Expiration Date, ( , 1996), unless the Offer is extended.
Within eight business days following the Expiration Date (the "Confirmation
Date"), , 1996, unless the Offer is extended, a confirmation will be
sent by the Subscription Agent to each subscribing Record Date Shareholder (or,
if the shareholder's shares are held by Cede or any other depository or nominee,
to Cede or such depository or nominee), showing (i) the number of Shares
acquired pursuant to the Primary Subscription, (ii) the number of Shares, if
any, allocated pursuant to the Over-Subscription Privilege, (iii) the per Share
and total purchase price for the Shares, and (iv) any additional amount payable
by the Record Date Shareholder to the Fund or any excess to be refunded by the
Fund to such shareholder, in each case based on the Subscription Price as
determined on the Pricing Date. If any Record Date Shareholder exercises the
right to acquire Shares pursuant to the Over-Subscription Privilege, any such
excess payment which would otherwise be refunded to him or her will be applied
by the Fund toward payment for Shares acquired pursuant to exercise of the Over-
10
<PAGE>
Subscription Privilege. Any additional payment required from a shareholder must
be received by the Subscription Agent within ten business days after the
Confirmation Date, , 1996, unless the Offer is extended. Any excess
payments to be refunded by the Fund to Record Date Shareholders will be mailed
by the Subscription Agent to them as promptly as possible. All payments by a
Record Date Shareholder must be in U.S. Dollars by money order or check drawn on
a bank located in the United States of America and payable to Schroder Asian
Growth Fund, Inc. The Subscription Agent will deposit all checks received by it
prior to the final due date into a segregated interest bearing account (which
interest will accrue to the benefit of the Fund) at [Subscription Agent] pending
distribution of the Shares.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment pursuant to any Notice of Guaranteed Delivery.
RECORD DATE SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTIONS
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT
UNDER THE CIRCUMSTANCES DESCRIBED ABOVE UNDER "NOTICE OF NET ASSET VALUE
DECLINE."
If a Record Date Shareholder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any
additional amounts due, the Fund reserves the right to take any or all of the
following actions: (i) sell such subscribed and unpaid-for Shares to other
shareholders pursuant to the Over-Subscription Privilege, (ii) apply any payment
actually received by it toward the purchase of the greatest whole number of
Shares which could be acquired by such shareholder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege, and/or (iii) exercise any and
all other rights or remedies to which it may be entitled.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR TO ARRANGE FOR
PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
11
<PAGE>
DELIVERY OF SHARE CERTIFICATES
Except as noted below in this paragraph, share certificates for all Shares
acquired during the Primary Subscription or pursuant to the Over-Subscription
Privilege will be mailed promptly after the expiration of the Offer and full
payment for the Shares subscribed for has been received and cleared.
Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will have any
Shares acquired in the Primary Subscription or pursuant to the Over-Subscription
Privilege credited to their shareholder dividend reinvestment accounts in the
Plan. Share certificates will not be issued for Shares credited to Plan
accounts. Participants in the Plan wishing to exercise Rights issued with
respect to shares held in their Plan accounts must exercise them in accordance
with the procedures set forth above. Any Shares acquired during the Primary
Subscription or pursuant to the Over-Subscription Privilege by shareholders
whose shares of Common Stock are held of record by Cede or by any other
depository or nominee on their behalf or their broker-dealers' behalf will be
certificated and share certificates representing such Shares will be sent
directly to Cede or such other depository or nominee.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
The U.S. Federal income tax consequences to Record Date Shareholders with
respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income, nor will Record Date Shareholders realize taxable
income as a result of the exercise of the Rights.
2. The basis of a Right received by a Record Date Shareholder will be
zero if the fair market value of the Right is less than 15% of the fair
market value of the Common Stock with respect to which the Right is issued
unless the Record Date Shareholder elects to allocate the basis of the
Common Stock between the Right and the Common Stock based upon their
respective fair market values immediately after the Right is issued. If the
fair market value of a Right immediately after issuance is 15% or more of
the fair market value of the Common Stock with regard to which it is issued,
the basis of the Right will be a portion of the basis of the Common Stock,
based upon the respective fair market values of the Right and the Common
Stock immediately after the Right is issued. It is unlikely that the fair
market value of the Right will exceed 15% of the fair market value of the
Common Stock. In the case of a Record Date Shareholder who receives a Right
and who allows the Right to expire, the basis of the Right will be zero.
3. If a Right is allowed to expire, there will be no loss realized.
4. If a Right is exercised by the Record Date Shareholder, the basis of
the Common Stock received will include the basis of the Right (see paragraph
2 above) and the amount paid upon exercise of the Right.
5. If a Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
The foregoing is only a summary of the applicable U.S. Federal income tax
law and does not include any state, local or non-U.S. tax consequences with
respect to the Offer. Investors should consult their tax advisers regarding
specific questions as to U.S. Federal, state, local and non-U.S. taxes.
12
<PAGE>
See "Taxation" in this Prospectus and in the SAI for a discussion of the tax
treatment of the Fund and its shareholders.
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") (collectively, "Plans")
should be aware that additional contributions of cash to the Plan (other than
rollover contributions or trustee-to-trustee transfers from other Plans) in
order to exercise Rights would be treated as Plan contributions and, when taken
together with contributions previously made, may subject a Plan, among other
things, to excise taxes for excess or nondeductible contributions. In the case
of Plans qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), additional cash contributions could cause the maximum
contribution limitations of Section 415 of the Code or other qualification rules
to be violated.
ERISA contains fiduciary responsibility requirements, and ERISA and the Code
contain prohibited transaction rules, that may impact the exercise of Rights.
Due to the complexity of these rules and the penalties for noncompliance. Plans
should consult with their counsel regarding the consequences of their exercise
of Rights under ERISA and the Code.
DILUTION AND THE EFFECT OF NON-PARTICIPATION IN THE OFFER
Upon the completion of the Offer, shareholders who do not fully exercise
their Rights will own a smaller proportional interest in the Fund than would be
the case if the Offer had not been made. In addition, because the Subscription
Price of each Share will be less than the net asset value per share of the
Fund's Common Stock and because the Fund will incur expenses in connection with
the Offer, the Offer will result in a dilution of net asset value per share for
all shareholders. This dilution will disproportionately affect shareholders who
do not exercise their Rights. It is not possible to state precisely the amount
of such a decrease in value, because it is not known at this time how many
Shares will be subscribed for or what the Subscription Price will be. However,
such dilution might be substantial. For example, assuming (i) all Rights are
exercised, (ii) the Fund issues an additional [ ]% of the Shares, (iii) the
Fund's net asset value on the Expiration Date is $ per share (the net
asset value per share on , 1996), and (iv) the Subscription Price is
$ per share ( % of the closing market price per share on
, 1996), then, after deducting all expenses relating to the issuance of the
Shares, the Fund's net asset value per share on such date would be reduced by
approximately $ per share or %.
13
<PAGE>
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT
- - ----------------------------------------------------------------------------------------
<S> <C>
Record Date.............................................................................
Subscription Period..................................................................... *
Expiration Date and Pricing Date........................................................ *
Subscription Certificates and Payment for Shares Due+................................... *
Notices of Guaranteed Delivery Due+..................................................... *
Payment for Guarantees of Delivery Due.................................................. *
Confirmation to Participants............................................................ *
Final Payment for Shares................................................................ *
</TABLE>
- - ------------
* Unless the Offer is extended.
+ A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for Shares or (ii) a Notice of Guaranteed Delivery by
the Expiration Date.
THE FUND
The Fund, incorporated in Maryland on November 5, 1993, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund's investment objective is to seek long-term capital
appreciation through investment primarily in equity securities of Asian
Companies (as defined in "Investment Objective and Policies" below). As a matter
of fundamental policy, under normal market conditions the Fund will invest at
least 65% of its total assets in equity securities of Asian Companies. As of
January 31, 1996, approximately 97% of the Fund's total assets were invested in
such securities, with the balance in short-term investments. No assurance can be
given that the Fund's investment objective will be achieved. Due to the risks
inherent in international investments generally, the Fund should be considered
as a vehicle for investing a portion of an investor's assets and not as a
complete investment program. See "Risk Factors and Special
Considerations--Foreign Currency and Exchange Rates," "--Investment and
Repatriation Restrictions," "--Market Characteristics," and "--Social, Political
and Economic Factors." The Investment Adviser to the Fund is Schroder Capital
Management International Inc. which, together with its affiliates, has
substantial investment management resources and experience in Asia. See
"Investment Advisory and Other Services--The Investment Adviser."
As of January 31, 1996, the Fund's net asset value was $274,624,880. At that
date, investments in the following Asian Countries accounted for the indicated
percentage of the Fund's total portfolio: Korea (7.0%), Hong Kong/China (22.3%),
India (7.1%), Indonesia (7.9%), Japan (14.5%), Malaysia (11.5%), the Philippines
(4.7%), Singapore (10.3%), Taiwan (1.0%) and Thailand (10.7%).
14
<PAGE>
USE OF PROCEEDS
If all of the Rights are exercised in full, and assuming a Subscription
Price of $ per share ( % of the closing market price per share on
, 1996), the net proceeds to the Fund would be approximately
$ after deducting expenses payable by the Fund in respect of the Offer
of approximately $ . If the Fund increases the number of Shares subject
to subscription by % (or Shares) to satisfy over-subscription requests,
the additional net proceeds would be approximately $ . However, there
can be no assurance that all Rights will be exercised in full, and the
Subscription Price will not be determined until the close of business on the
Expiration Date. The net proceeds of the Offer will be invested in accordance
with the Fund's investment objective and policies. The Fund believes that it may
take up to six months from the date of this Prospectus to invest such net
proceeds, depending on market conditions and the availability of suitable
investments. Pending such investment, the proceeds will be invested in Temporary
Investments as described under "Investment Objective and Policies--Temporary
Investments."
MARKET AND NET ASSET VALUE INFORMATION
The Fund's outstanding Common Stock is, and the Shares will be, listed on
the NYSE. The Fund's shares commenced trading on the NYSE on December 22, 1993.
The following table shows for the periods indicated (1) the high and low sales
prices for transactions in the Fund's shares on the NYSE Composite Tape, (2) the
net asset value as determined on the date closest to each quotation and (3) the
discount or premium to net asset value (expressed as a percentage) represented
by the quotation.
<TABLE>
<CAPTION>
PREMIUM
NET ASSET (OR DISCOUNT) VOLUME OF
MARKET PRICE VALUE PERCENTAGE TRADING
------------ ------------- --------------- ---------------- TOTAL
PERIOD HIGH LOW HIGH LOW HIGH LOW HIGH LOW VOLUME
- - ----------------------------- ------------ ------------ ----- ----- ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dec. 22--Dec. 31, 1993....... 15 7/8 15 14.01 14.01 12.42 12.42 361,800 56,800 1,417,200
Jan. 1--March 31, 1994....... 16 1/8 11 1/8 13.92 12.55 14.49 (4.38) 228,300 13,300 3,719,600
April 1--June 30, 1994....... 14 1/8 10 1/2 13.20 12.44 2.05 (9.79) 93,800 7,000 1,924,900
July 1--Sep. 30, 1994........ 13 3/4 11 5/8 14.12 12.89 (3.09) (11.57) 65,800 9,700 1,840,500
Oct. 1--Dec. 31, 1994........ 12 3/4 9 5/8 13.78 12.36 (9.29) (20.11) 195,400 14,900 3,710,500
Jan. 1--March 31, 1995....... 11 9 3/8 12.05 11.54 (10.79) (18.57) 131,600 14,500 2,994,500
April 1--June 30, 1995....... 12 1/8 10 13.18 11.91 (10.23) (15.84) 142,600 14,300 2,616,000
July 1--Sept. 30, 1995....... 12 1/8 10 5/8 13.56 12.83 (10.85) (15.48) 140,200 6,100 2,818,900
Oct. 1--Dec. 31, 1995........ 12 3/8 10 1/8 13.09 11.91 (3.92) (15.37) 293,400 16,200 4,475,900
Jan. 1--March 31, 1996.......
</TABLE>
Since the commencement of the Fund's operations in December 1993, the Fund's
shares have usually traded in the market below net asset value, although they
have upon occasion traded at or above net asset value. Shares of closed-end
investment companies frequently trade at a discount to net asset value. The Fund
cannot predict whether the Fund's shares will in the future trade at a premium
or discount to net asset value, or the level of such premium or discount. On
, 1996, the last sale price of the Fund's shares on the NYSE was
$ , which represented a [premium/discount] of % [above/below] the net
asset value per share of $ .
15
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation through investment primarily in equity securities of Asian
Companies. As a matter of fundamental policy, under normal market conditions the
Fund will invest at least 65% of its total assets in equity securities of Asian
Companies. Under current market conditions, the Investment Adviser anticipates
that 80% or more of the Fund's total assets will be invested in such securities.
No assurance can be given that the Fund's investment objective will be achieved.
Asian Companies include companies that (i) are organized under the laws of
China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, or Thailand, or any other countries
in the Asian region located south of the border of the former Soviet Union, east
of the borders of Afghanistan and Iran, north of the Australian subcontinent and
west of the International Date Line that in the future permit foreign investors
to participate in their stock markets (collectively, "Asian Countries"), or (ii)
regardless of where organized, and as determined by the Investment Adviser, (A)
derive at least 75% of their revenues from goods produced or sold, investments
made or services performed in Asian Countries or (B) maintain at least 75% of
their assets in Asian Countries.
Equity securities include common and preferred stock (including convertible
preferred stock), bonds, notes and debentures convertible into common or
preferred stock, stock purchase warrants and rights, equity interests in trusts,
partnerships, joint ventures or similar enterprises and American, Global or
other types of Depositary Receipts. Most of the equity securities purchased by
the Fund are expected to be traded on a foreign stock exchange or in a foreign
over-the-counter market. To the extent consistent with its investment objective,
the Fund may invest up to 10% of its total assets in debt securities issued or
guaranteed by (i) governments, or agencies of such governments, of Asian
Countries or (ii) Asian Companies. These debt securities may be unrated or rated
below investment grade. See "Risk Factors and Special Considerations--Debt
Securities--High Yield, High Risk Securities."
The Fund's investment objective and its intent to invest, under normal
market conditions, at least 65% of its total assets in equity securities of
Asian Companies are fundamental policies of the Fund which may not be changed
without the approval of a "majority of the Fund's outstanding voting
securities." As used in this Prospectus, a "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented, and
(ii) more than 50% of the outstanding shares. The Fund's investment policies
that are not designated fundamental policies may be changed by the Fund without
shareholder approval, but the Fund will not change its investment policies
without contemporaneous notice to its shareholders.
While the Fund has no predetermined policy on the allocation of funds for
investment among Asian Countries, the Investment Adviser expects that, under
normal market conditions, the Fund will generally invest in at least five Asian
Countries. The Investment Adviser expects that the Fund's investments will be
made in companies located in 13 of the Asian Countries: China, Hong Kong, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, Thailand and Japan (to the extent that Japanese companies supply or
manufacture products within the region or benefit from growth in the region).
The Investment Adviser invests the Fund's assets over a broad
16
<PAGE>
spectrum of Asian economic sectors, including, but not limited to, trade,
finance, real estate, transportation, communications, energy, construction,
manufacturing, services and food processing.
TEMPORARY INVESTMENTS
The Fund may hold and/or invest its assets without limitation in cash and/or
Temporary Investments (as defined below) for cash management purposes, pending
investment in accordance with the Fund's investment objective and policies, and
to meet its obligations under any tender offer or Share repurchases during the
period between the date on which such obligations arise and the payment date for
such obligations (which period normally will not exceed 14 days). In addition,
the Fund may take a temporary defensive posture and invest without limitation in
Temporary Investments. The Fund may assume a temporary defensive posture when,
owing to political, market or other factors broadly affecting markets in one or
more Asian Countries, the Investment Adviser determines either that
opportunities for capital appreciation in those markets may be significantly
limited or that significant diminution in value of the securities traded in
those markets may occur. To the extent that the Fund invests in Temporary
Investments, it may not achieve its investment objective.
Temporary Investments are high quality debt securities (rated AA or above by
Standard & Poor's Corporation ("S&P") or Aa or above by Moody's Investors
Services, Inc. ("Moody's") or with an equivalent rating by other nationally
recognized securities rating organizations) denominated in U.S. Dollars or in
another freely convertible currency including: (1) short-term (less than 12
months to maturity) and medium-term (not more than five years to maturity)
obligations issued or guaranteed by (a) the United States government, its
agencies or instrumentalities or (b) international organizations designated or
supported by multiple foreign governmental entities to promote economic
reconstruction or development ("supranational entities"); (2) U.S. finance
company obligations, corporate commercial paper and other short-term commercial
obligations; (3) obligations (including certificates of deposit, time deposits,
demand deposits and bankers' acceptances) of banks; and (4) repurchase
agreements with respect to securities in which the Fund may invest. The banks
whose obligations may be purchased by the Fund and the banks and broker-dealers
with which the Fund may enter into repurchase agreements include any member bank
of the Federal Reserve System and any U.S. broker-dealer or any foreign bank
that has been determined by the Investment Adviser to be creditworthy.
Repurchase agreements are contracts pursuant to which the seller of a
security agrees at the time of sale to repurchase the security at an agreed upon
price and date. When the Fund enters into a repurchase agreement, the seller
will be required to maintain the value of the securities subject to the
repurchase agreement, marked to market daily, at not less than their repurchase
price. Repurchase agreements may involve risks in the event of insolvency or
other default by the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
OTHER INVESTMENTS
Shares of Other Investment Funds. The Fund may invest in investment funds
which invest principally in securities in which the Fund is authorized to
invest. The Fund does not intend to invest in such investment funds unless, in
the judgment of the Investment Adviser, the potential benefits of such
investment justify the payment of any applicable premium, sales load and
expenses. See "Risk Factors
17
<PAGE>
and Special Considerations--Investment and Repatriation Restrictions." From time
to time, such investment funds may be the sole means by which the Fund may
invest in equity securities of certain Asian Companies. Under the 1940 Act, the
Fund may invest a maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more than 5% of the
Fund's total assets may be invested in the securities of any one investment
company. To the extent the Fund invests in other investment funds, the Fund's
shareholders will indirectly incur certain duplicative fees and expenses,
including investment advisory fees and sales loads paid for transactions in
shares of such funds. For a discussion of possible consequences under U.S.
Federal income tax laws of the Fund's investment in foreign investment funds,
see "Taxation--U.S. Federal Income Taxes--Other Taxation" in the SAI.
Illiquid Securities. The Fund may invest up to 10% of its total assets,
valued at the time of purchase with respect to any such security, in illiquid
securities for which there may be no or only a limited trading market and for
which a low trading volume of a particular security may result in abrupt and
erratic price movements. The Fund may be unable to dispose of its holdings in
illiquid securities at then current market prices and may have to dispose of
such securities over extended periods of time. See "Risk Factors and Special
Considerations--Market Characteristics" and "--Illiquid Investments." In many
cases, illiquid securities will be subject to contractual or legal restrictions
on transfer. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded.
Rule 144A Securities. The Fund may purchase certain restricted securities
("Rule 144A securities") for which there is a secondary market of qualified
institutional buyers, as contemplated by Rule 144A under the Securities Act.
Rule 144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers. One effect of Rule 144A is that certain restricted
securities may now be liquid, though there is no assurance that a liquid market
for any particular Rule 144A security will develop or be maintained. In
promulgating Rule 144A, the Commission stated that the ultimate responsibility
for liquidity determinations is that of an investment company's board of
directors. However, the Commission stated that the board may delegate the
day-to-day function for determining liquidity to a fund's investment adviser,
provided that the board retains sufficient oversight. The Board of Directors of
the Fund has adopted policies and procedures for the purpose of determining
whether securities that are eligible for resale under Rule 144A are liquid or
illiquid securities. Pursuant to those policies and procedures, the Board of
Directors has delegated to the Investment Adviser the determination as to
whether a particular security is liquid or illiquid. If any Rule 144A security
previously determined to be liquid is later determined to be illiquid, such
security will be subject to the Fund's 10% limitation on illiquid securities.
Convertible Securities. The Fund may invest in convertible securities
including such securities that may be unrated or rated below investment grade.
See "Risk Factors and Special Considerations-- Debt Securities--High Yield, High
Risk Securities." A convertible security is a bond, debenture, note, or
preferred stock that may be converted into or exchanged for a prescribed amount
of common or preferred stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
or preferred stocks, but lower yields than comparable nonconvertible securities,
(2)
18
<PAGE>
a lesser degree of fluctuation in value than the underlying stock since they
have fixed income characteristics, and (3) the potential for capital
appreciation if the market price of the underlying common or preferred stock
increases.
A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common or preferred stock or sell it to a third party.
Warrants. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holder to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date.
ADDITIONAL INVESTMENT PRACTICES
HEDGING
The Fund is authorized to use various hedging and investment strategies
described below to hedge various market risks (such as broad or specific market
movements and interest rates and currency exchange rates), to manage the
effective maturity or duration of debt instruments held by the Fund, or to seek
to increase the Fund's gain or to create a temporary substitute for the purchase
or sale of a particular debt or equity security. Although these strategies are
regularly used by some investment companies and other institutional investors,
few of these strategies can practicably be used to a significant extent by the
Fund at the present time and may not become available for extensive use in the
future. Techniques and instruments may change, however, over time as new
instruments and strategies are developed or regulatory changes occur.
Subject to the constraints described above, the Fund may purchase and sell
interest rate, currency or stock index futures contracts and enter into currency
forward contracts and currency swaps, caps, collars and floors, it may purchase
and sell (or write) exchange listed and over-the-counter put and call options on
debt and equity securities, currencies, futures contracts, fixed income and
stock indices and other financial instruments and it may enter into interest
rate transactions, equity swaps, caps, collars and floors, and related
transactions and other similar transactions which may be developed to the extent
the Investment Adviser determines that they are consistent with the Fund's
investment objective and policies and applicable regulatory requirements
(collectively, these transactions are referred to in this Prospectus as
"Hedging"). The Fund may enter into futures contracts or options thereon for
purposes other than bona fide hedging if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open contracts and options would
not exceed 5% of the liquidation value of the Fund's portfolio; provided that,
in the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
Hedging may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets or
19
<PAGE>
currency exchange rate fluctuations, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of those
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular debt or equity
securities. The ability of the Fund to utilize Hedging successfully will depend
on the Investment Adviser's ability to predict pertinent market movements, which
cannot be assured. These skills are different from those needed to select
portfolio securities. The use of Hedging in certain circumstances will require
that the Fund segregate cash, U.S. government securities or liquid high grade
debt obligations to the extent the Fund's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency.
For a detailed discussion of Hedging, including applicable requirements of
the Commodity Futures Trading Commission, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies, see "Certain Investment Practices--Risks of Hedging" in the SAI.
The degree of the Fund's use of Hedging may be limited by certain provisions
of the Code. See "Taxation--U.S. Federal Income Taxes--Foreign Exchange-Related
Transactions; Hedging Transactions" in the SAI.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery basis.
Securities purchased on a when-issued or delayed delivery basis are purchased
for delivery beyond the normal settlement date at a stated price. No income
accrues to the purchaser of a security on a when-issued or delayed delivery
basis prior to delivery. Such securities are recorded as an asset and are
subject to changes in value based upon changes in market prices. Purchasing a
security on a when-issued or delayed delivery basis can involve a risk that the
market price at the time of delivery may be lower than the agreed-upon purchase
price, in which case there could be an unrealized loss at the time of delivery.
The Fund will only make commitments to purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities
but may sell them before the settlement date if it is deemed advisable. The Fund
will establish a segregated account in which it will maintain liquid assets in
an amount at least equal in value to the Fund's commitments to purchase
securities on a when-issued or delayed delivery basis. If the value of these
assets declines, the Fund will place additional liquid assets in the account on
a daily basis so that the value of the assets in the account is equal to the
amount of such commitments. See "Risk Factors and Special
Considerations--Investment Practices."
LOANS OF PORTFOLIO SECURITIES
The Fund may lend portfolio securities. By doing so, the Fund attempts to
earn income through the receipt of interest on the loan. In the event of the
bankruptcy of the other party to a securities loan, the Fund could experience
delays in recovering the securities it lent. To the extent that, in the
meantime, the value of the securities the Fund lent has increased, the Fund
could experience a loss.
The Fund may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund with
respect to the loan is maintained by the Fund in a segregated account. Any
20
<PAGE>
securities that the Fund may receive as collateral will not become a part of its
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn income or receive an agreed-upon fee from a borrower that
has delivered cash equivalent collateral. Cash collateral received by the Fund
will be invested in U.S. government securities and liquid high grade debt
obligations. The value of securities loaned will be marked to market daily.
Portfolio securities purchased with cash collateral are subject to possible
depreciation. Loans of securities by the Fund will be subject to termination at
the Fund's or the borrower's option. The Fund may pay reasonable negotiated fees
in connection with loaned securities, so long as such fees are set forth in a
written contract and approved by the Fund's Board of Directors.
LEVERAGE
The Fund will not employ leverage to purchase portfolio securities. However,
the Fund may borrow money for temporary or emergency purposes (including, for
example, clearance of transactions or payments of dividends to shareholders) in
an amount not exceeding 5% of the value of the Fund's total assets (including
the amount borrowed), and may borrow money in connection with repurchases of its
Shares or tender offers in an amount up to one-third of the value of the Fund's
total assets (including the amount borrowed).
INVESTMENT IN ASIA
[TO BE UPDATED]
During the past 12 years, Asian Countries have experienced real economic
growth rates exceeding those experienced by many Western industrialized nations.
Such economic growth has been favorably affected by highly competitive wages and
certain other cost advantages relative to the United States and other
industrialized countries. The Investment Adviser believes that this high growth
is producing rising per capita incomes which are now supporting the development
of larger local markets. Together with favorable demographic trends, high
savings rates and investment, particularly in the development of infrastructure,
the growth of those local markets should, in the view of the Investment Adviser,
provide conditions supportive of long-term economic growth. While such future
economic growth in the Asian Countries cannot be assured, the Investment Adviser
believes that conditions exist to provide for high levels of economic activity
in the long term, offering the potential for long-term capital appreciation from
investment in equity securities of Asian Companies.
Asia consists of countries in various stages of economic development. For
example, there are industrialized countries, such as Japan; newly
industrializing countries, such as Hong Kong, Korea, Singapore and Taiwan; and
developing countries, such as China, India, Indonesia, Malaysia, Pakistan, the
Philippines, Sri Lanka and Thailand. In general, during the last 14 years the
service and industry sectors of many Asian Countries have increased
substantially as a percentage of their gross domestic product ("GDP") in
relation to the agricultural and other sectors in the same period. At present,
the economies of Asian Countries are trade oriented, with the United States,
Japan and China as the principal trading partners. In the last decade, the
aggregate share of world exports of Asian Countries has increased substantially.
In addition, since 1985, the proportion of intra-regional trade has been
21
<PAGE>
rising rapidly. The Investment Adviser believes that as a result of closer
economic cooperation between the Asian Countries, the emergence of a regional
trading zone, and a rapid pace of economic reform, including a shift,
particularly among the developing countries, toward the private sector
accounting for an increasing portion of GDP, the Asian region will continue to
offer attractive investment opportunities.
The Asian region's ability to attract direct foreign investment has
underpinned regional economic growth. In particular, Japanese direct investment
in Asian manufacturing facilities rose by 40% between 1988 and 1991. The amount
of direct investments made in Asia by Japan is more than double the amount
invested by the United States. While there can be no assurance that this level
of investment will continue, the Investment Adviser believes that direct
investment from Japan enhances the long-term growth potential of a recipient
country through mobilization of domestic savings in joint ventures, improvement
of local training and education, modernization of management and accounting
techniques and systems, transfer of technology and promotion of exports.
The Investment Adviser believes that investment opportunities in the
securities markets of Asian Countries will continue to expand during the next
decade. Through active privatization programs and governmental policies
supportive of stock market developments, the number of publicly traded companies
in the region has increased substantially over the past five years and is
expected to increase further over the next decade. Historically, many fast
growing securities markets in the Asian region, such as Korea and Taiwan, have
been effectively closed to foreign investors, and many restrictions on foreign
investment in the securities markets of those countries, as well as several
other Asian Countries, remain. The Investment Adviser, together with other
members of the Schroder Group (as decscribed below), undertakes extensive
research ahead of the opening of such markets to direct foreign portfolio
investment through its well-established local research efforts. This activity is
consistent with the Investment Adviser's overall strategy of taking a long-term
approach to investment based upon its assessment of growth potential.
For additional information, see "Asian Economies and Stock Markets" at Annex
A to this Prospectus.
22
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should recognize that investing in non-U.S. securities involves
certain risks and special considerations, including those set forth below, which
are not typically associated with investing in securities of U.S. companies.
Further, certain investments that the Fund may purchase, and investment
techniques in which the Fund may engage, involve risks, including those set
forth below.
SPECIAL CONSIDERATIONS RELATING TO THE OFFER
The Offer will result in dilution to all shareholders, whether or not they
exercise their Rights. An immediate substantial dilution of the aggregate net
asset value of the shares owned by Record Date Shareholders who do not fully
exercise their Rights is likely to be experienced as a result of the Offer
because the Subscription Price will be less than the Fund's then-net asset value
per share (no more than % of such net asset value per share), and the number
of shares outstanding after the Offer will to increase in a greater percentage
than the increase in the size of the Fund's assets. Moreover, because the
Subscription Price is based on the lower of (a) the average of the last reported
sale price of a share of the Fund's Common Stock on the NYSE on the date of the
expiration of the Offer (the "Pricing Date") and on the four preceding business
days and (b) the net asset value per share of the Fund's Common Stock as of the
close of business on the Pricing Date, to the extent the market price is less
than net asset value, the Subscription Price will be further discounted from net
asset value. Since commencement of the Fund's operations, the Fund's shares have
usually traded in the market below net asset value. See "Market and Net Asset
Value Information."
In addition, as a result of the terms of the Offer, Record Date Shareholders
who do not fully exercise their Rights will, at the completion of the Offer, own
a smaller proportional interest in the Fund than they owned prior to the Offer.
Although it is not possible to state precisely the amount of such a decrease in
value, because it is not known at this time what the net asset value per share
will be at the Expiration Date, such dilution could be substantial. For example,
assuming that all Rights are exercised and that the Subscription Price of
$ is % below the closing market price per share of $ per share on
, 1995, the Fund's net asset value per share would be reduced by
approximately $ per share.
NON-U.S. CURRENCY AND EXCHANGE RATES
The Fund's assets are invested in non-U.S. securities and substantially all
income is received by the Fund in non-U.S. currencies. However, the Fund
computes and distributes its income in Dollars, and the computation of income is
made on the date of its receipt by the Fund at the exchange rate in effect on
that date. Therefore, if the value of the non-U.S. currencies in which the Fund
receives its income falls relative to the Dollar between receipt of the income
and the making of Fund distributions, the Fund will be required to liquidate
securities in order to make distributions if the Fund has insufficient cash in
Dollars to meet distribution requirements.
The value of the assets of the Fund as measured in Dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Certain of the risks associated with international
investments are heightened for investments in Asian Countries. For example, some
of the currencies of Asian Countries have experienced devaluations relative to
the U.S. Dollar, and major adjustments have been made periodically in certain of
such currencies. Certain countries, such as India, face serious exchange
constraints. Further, the Fund may incur costs in
23
<PAGE>
connection with conversions between various currencies. Currency exchange
dealers realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer normally will
offer to sell a non-U.S. currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire immediately to resell that
currency to the dealer. The Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the non-U.S.
currency exchange market, or through entering into forward, futures or options
contracts to purchase or sell non-U.S. currencies. The following table sets
forth historical exchange rates per U.S. Dollar for the Asian currencies listed.
CURRENCY EXCHANGE RATES
PER U.S. DOLLAR
END OF PERIOD
<TABLE>
<CAPTION>
CHINA HONG KONG INDIA INDONESIA JAPAN KOREA MALAYSIA PAKISTAN PHILIPPINES
RMB HK$ RS RUPIAH Y W RM PRS P
------ --------- ----- --------- ----- ----- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985................................... 3.2015 7.811 12.166 1125 200.5 890.2 2.4265 15.98 19.032
1986................................... 3.7221 7.790 13.122 1641 159.1 861.4 2.6030 17.25 20.530
1987................................... 3.7221 7.760 12.877 1650 123.5 792.3 2.4928 17.45 20.800
1988................................... 3.7221 7.806 14.949 1731 125.9 684.1 2.7153 18.65 21.335
1989................................... 4.7221 7.807 17.035 1797 143.5 679.6 2.7033 21.42 22.440
1990................................... 5.2221 7.801 18.073 1901 134.4 716.4 2.7015 21.90 28.000
1991................................... 5.4342 7.781 25.834 1992 125.2 760.8 2.7240 24.72 26.650
1992................................... 5.7518 7.741 26.200 2062 124.8 788.4 2.6120 25.70 25.096
1993................................... 5.8000 7.726 31.380 2100 111.9 808.1 2.7015 30.120 .699
1994................................... 8.4462 7.737 31.380 2200 99.7 788.7 2.5600 38.800 24.418
1995................................... 8.3179 7.7333 35.055 2289 102.9 775.72 2.5413 34.216 26.235
<CAPTION>
SINGAPORE SRI LANKA TAIWAN THAILAND
S$ SLRS NT$ B
--------- --------- ------ --------
<S> <C> <C> <C> <C>
1985................................... 2.1050 .408 39.850 26.65
1986................................... 2.1750 28.520 35.500 26.13
1987................................... 1.9985 30.763 28.550 25.07
1988................................... 1.9462 33.033 28.170 25.24
1989................................... 1.8944 40.000 26.160 25.69
1990................................... 1.7445 40.240 .108 25.29
1991................................... 1.6305 42.580 25.748 25.28
1992................................... 1.6449 46.000 25.403 25.52
1993................................... 1.6080 49.562 26.626 25.54
1994................................... 1.4607 49.980 26.240 25.09
1995................................... 1.4148 53.498 .286 25.19
</TABLE>
- - ------------
Sources: International Monetary Fund, International Financial Statistics of
November 1995; Wall Street Journal, 30 December 1995.
INVESTMENT AND REPATRIATION RESTRICTIONS
[TO BE UPDATED]
Foreign investment in the securities markets of several of the Asian
Countries is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian Countries and may increase expenses of
the Fund. For example, certain countries may require governmental approval prior
to investments by foreign persons in a particular company or industry sector or
limit investment by foreign persons to only a specific class of securities of a
company which may have less advantageous terms (including price) than securities
of the company available for purchase by nationals. Certain countries may
restrict or prohibit investment opportunities in issuers or industries deemed
important to national interests. In addition, the repatriation of both
investment income and capital from several of the Asian Countries is subject to
restrictions such as the need for certain government consents. Even where there
is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of the Fund. Although
these restrictions may in the future make it undesirable to invest in the
countries to which they apply, the Investment Adviser does not believe that any
current repatriation restrictions would have a material impact on the Fund's
ability to manage its assets.
24
<PAGE>
If, because of restrictions on repatriation or conversion, the Fund were
unable to distribute substantially all of its net investment income (including
short-term capital gains) and long-term capital gains within applicable time
periods, the Fund could be subject to U.S. Federal income and excise taxes which
would not otherwise be incurred and may cease to qualify for the favorable tax
treatment afforded to regulated investment companies under the Code, in which
case it would become subject to U.S. Federal income tax on all of its income and
gains. See "Taxation--U.S. Federal Income Taxes-- Other Taxation" in the SAI.
Generally, there are restrictions on foreign investment in certain Asian
Countries, although these restrictions vary in form and content. In India,
Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the Fund
may be limited by government regulation or a company's charter to a maximum
percentage of equity ownership in any one company. Korea generally prohibits
foreign investment in Won-denominated debt securities and Sri Lanka prohibits
foreign investment in government debt securities. In the Philippines, the Fund
may generally invest in "B" shares of Philippine issuers engaged in partly
nationalized business activities, which shares are made available to foreigners,
and the market prices, liquidity and rights of which may vary from shares owned
by nationals. Similarly, in China, the Fund may only invest in "B" shares of
securities traded on The Shanghai Securities Exchange and The Shenzhen Stock
Exchange, currently the two officially recognized securities exchanges in China.
"B" shares traded on The Shanghai Securities Exchange are settled in U.S.
Dollars and those traded on The Shenzhen Stock Exchange are generally settled in
Hong Kong Dollars. In Hong Kong, Japan, Korea, the Philippines, Taiwan and
Thailand there are restrictions on the percent of permitted foreign investment
in shares of certain companies, mainly those in highly regulated industries,
although in Taiwan there are limitations on foreign ownership of shares of any
listed company. In addition, Korea also prohibits foreign investment in
specified telecommunication companies and the Philippines prohibits foreign
investment in mass media companies and companies providing certain professional
services.
From time to time, pooled investment funds may be the most effective
available means by which the Fund may invest in equity securities of certain
Asian Countries. For example, prior to January 3, 1992, foreign investment in
Korea was generally limited to a few investment funds that had been granted a
license from the government of Korea, although since that date direct foreign
investment in individual stocks in Korea has been officially permitted within
specified limits. Investment in such investment funds may involve the payment of
management expenses and, in connection with some purchases, sales loads, and
payment of substantial premiums above the value of such companies' portfolio
securities. The Fund does not intend to invest in such investment funds unless,
in the judgment of the Investment Adviser, the potential benefits of such
investment outweigh the payment of any applicable premium, sales load and
expenses. See "Investment Objective and Policies--Other Investments." In
addition, the Fund's investments in such investment funds are subject to
limitations under the 1940 Act and market availability, and may result in
special U.S. Federal income tax consequences described below under
"Taxation--U.S. Federal Income Taxes--Other Taxation" in the SAI.
MARKET CHARACTERISTICS
Differences Between the U.S. and Asian Securities Markets. Most of the
securities markets of the Asian Countries have substantially less volume than
the NYSE, and equity securities of most companies in the Asian Countries are
less liquid and more volatile than equity securities of U.S. companies of
comparable size. Some of the stock exchanges in the Asian Countries, such as
those in China, are in the earliest stages of their development. Many companies
traded on securities markets in Asian Countries
25
<PAGE>
are smaller, newer and less seasoned than companies whose securities are traded
on securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any of the
Asian Countries experiences rapid increases in its money supply and investment
in equity securities for speculative purposes, the equity securities traded in
any such country may trade at price-earning multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable.
Brokerage commissions and other transaction costs on securities exchanges in
the Asian Countries are generally higher than in the United States. In addition,
security settlements may in some instances be subject to delays and related
administrative uncertainties.
Government Supervision of Asian Securities Markets; Legal Systems. There is
also less government supervision and regulation of securities exchanges, listed
companies and brokers in the Asian Countries than exists in the United States.
Less information may, therefore, be available to the Fund than in respect of
investments in the United States. Further, in certain Asian Countries, less
information may be available to the Fund than to local market participants.
Brokers in Asian Countries may not be as well capitalized as those in the United
States, so that they are more susceptible to financial failure in times of
market, political or economic stress. In addition, existing laws and regulations
are often inconsistently applied. As legal systems in some of the Asian
Countries develop, foreign investors may be adversely affected by new laws and
regulations, changes to existing laws and regulations and preemption of local
laws and regulations by national laws. In circumstances where adequate laws
exist, it may not be possible to obtain swift and equitable enforcement of the
law.
Financial Information and Standards. Issuers in Asian Countries generally
are subject to accounting, auditing and financial standards and requirements
that differ, in some cases significantly, from those applicable to U.S. issuers.
In particular, the assets and profits appearing on the financial statements of
an Asian Country issuer may not reflect its financial position or results of
operations in the way they would be reflected had the financial statements been
prepared in accordance with U.S. generally accepted accounting principles. In
addition, for an issuer that keeps accounting records in local currency,
inflation accounting rules may require, for both tax and accounting purposes,
that certain assets and liabilities be restated on the issuer's balance sheet in
order to express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities
markets. Moreover, substantially less information may be publicly available
about issuers in Asian Countries than is available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Many of the Asian Countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
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political and economic decisionmaking, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the Fund invests
and adversely affect the value of the Fund's assets. In addition, there may be
the possibility of asset expropriations or future confiscatory levels of
taxation affecting the Fund.
Few of the Asian Countries have Western-style or fully democratic
governments. Some governments in the region are authoritarian in nature and
influenced by security forces. For example, during the course of the last 25
years, governments in the region have been installed or removed as a result of
military coups, while others have periodically demonstrated repressive police
state characteristics. In several Asian Countries, the leadership ability of the
government has suffered as a result of recent corruption scandals. Disparities
of wealth, among other factors, have also led to social unrest in some of the
Asian Countries accompanied, in certain cases, by violence and labor unrest.
Ethnic, religious and racial disaffection, as evidenced in India, Pakistan and
Sri Lanka, have created social, economic and political problems.
Several of the Asian Countries have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including China and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between North
Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, China continues to claim sovereignty over
Taiwan and recently has conducted military maneuvers near Taiwan. China is
acknowledged to possess nuclear weapons capability; North Korea is alleged to
possess or be in the process of developing such a capability.
In Hong Kong, British proposals to extend limited democracy have caused a
political rift with China, which is scheduled to assume sovereignty over the
colony in 1997. Although China has committed by treaty to preserve the economic
and social freedoms enjoyed in Hong Kong for 50 years after regaining control of
Hong Kong, the continuation of the current form of the economic system in Hong
Kong after the reversion will depend on the actions of the government of China.
In addition, such reversion has increased sensitivity in Hong Kong to political
developments and statements by public figures in China. Business confidence in
Hong Kong, therefore, can be significantly affected by such developments and
statements, which in turn can affect markets and business performance.
The economies of most of the Asian Countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian Countries. In addition, the economies
of some of the Asian Countries, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
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Governments in certain of the Asian Countries participate to a significant
degree, through ownership interests or regulation, in their respective
economies. Action by these governments could have a significant adverse effect
on market prices of securities and payment of dividends.
INVESTMENT PRACTICES
Certain risks and special considerations of certain of the investment
practices in which the Fund may engage are described above under "Investment
Objective and Policies" and "Additional Investment Practices." Hedging involves
special risks, including possible default by the other party to the transaction,
illiquidity and, to the extent the Investment Adviser's view as to certain
market movements is incorrect, the risk that the use of Hedging could result in
greater losses than if it had not been used. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions could result in the Fund's incurring losses as a result of the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain special risks. In particular, the variable degree
of correlation between price movements of futures contracts and price movements
in the related portfolio position of the Fund could create the possibility that
losses on the hedging instrument will be greater than gains in the value of the
Fund's position. In addition, futures and options markets could be illiquid in
some circumstances and certain over-the-counter options could have no markets.
As a result, the Fund might not be able to close out certain positions without
incurring substantial losses. To the extent the Fund utilizes futures and
options transactions for Hedging, such transactions should tend to minimize the
risk of loss due to a decline in the value of the hedged position and, at the
same time, limit any potential gain to the Fund that might result from an
increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium and transaction costs. Losses resulting from the
use of Hedging will reduce the Fund's net asset value, and possibly income, and
the losses may be greater than if Hedging had not been used. For additional
information regarding the risks and special considerations associated with
Hedging, see "Certain Investment Practices" in the SAI.
ILLIQUID INVESTMENTS
The Fund may invest up to 10% of its total assets in illiquid securities.
Investment of the Fund's assets in relatively illiquid securities may restrict
the ability of the Fund to dispose of its investments in a timely fashion and
for a fair price as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be particularly acute
in situations in which the Fund's operations require cash, such as when the Fund
repurchases shares, commences a tender offer, or pays dividends or
distributions, and could result in the Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.
Further, companies whose securities are not publicly traded are not subject to
the disclosure and other investor protection requirements which would be
applicable if their securities were publicly traded.
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WITHHOLDING AND OTHER TAXES
The Fund is subject to taxes, including withholding taxes on income and
capital gains, that are or may be imposed by certain of the Asian Countries,
which will reduce the return to the Fund. The Fund may elect, when eligible, to
"pass-through" to the Fund's shareholders such taxes that are treated as income
taxes for U.S. Federal income tax purposes. If the Fund makes such election,
shareholders will be required to include in income their proportionate shares of
the amount of non-U.S. income taxes paid by the Fund and may be entitled to
claim either a credit or deduction for all or a portion of such taxes. See
"Taxation--Non-U.S. Taxes" below for a discussion of the rules and limitations
applicable to the treatment of non-U.S. income taxes under the U.S. Federal
income tax laws. Certain shareholders, including non-U.S. shareholders, will not
be entitled to the benefit of a deduction or credit with respect to non-U.S.
income taxes paid by the Fund. Other non-U.S. taxes, such as transfer taxes, may
be imposed on the Fund, but would not be eligible to be passed through to
shareholders as a credit or deduction. Also, additional U.S. Federal income
taxes and charges may be incurred as a result of any investment made in "passive
foreign investment companies." See "Taxation--U.S. Federal Income Taxes--Other
Taxation" in the SAI.
NET ASSET VALUE DISCOUNT/PREMIUM
Since the commencement of the Fund's operations in December 1993, the Fund's
shares have usually traded in the market below net asset value, although they
have upon occasion traded at or above net asset value. This is characteristic of
shares of a closed-end fund and is a risk separate and distinct from the risk of
a decline in the net asset value as a result of a fund's investment activities.
In some cases, however, shares of closed-end funds may trade at a premium. For
additional information concerning the market price and net asset value per share
of the Fund, see "Market and Net Asset Value Information."
NON-DIVERSIFICATION
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, could be subject to
greater risk of loss. The Fund, however, intends to comply with the
diversification requirements imposed by the Code for qualification as a
regulated investment company. See "Taxation--U.S. Federal Income Taxes"; see
also "Taxation" in the SAI.
TRANSACTION COSTS
The Fund's transaction costs are higher than the transaction costs for the
typical investment company investing in U.S. securities. In addition to
incurring transaction costs associated with converting currency to and from
foreign currencies and Dollars, the Fund incurs brokerage costs on its portfolio
transactions at commission rates that are generally uniform and higher than in
the United States. See "Portfolio Transactions and Brokerage" in the SAI.
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ANTI-TAKEOVER PROVISIONS
The Fund's Articles of Incorporation contain certain anti-takeover
provisions that may have the effect of limiting the ability of other persons to
acquire control of the Fund or to change the composition of the Fund's Board of
Directors. In certain circumstances, these provisions might also inhibit the
ability of holders of shares to sell their shares at a premium over prevailing
market prices. The Fund's Board of Directors has determined that these
provisions are in the best interests of shareholders generally. See "Common
Stock."
DEBT SECURITIES--HIGH YIELD, HIGH RISK SECURITIES
The Fund may, as a non-fundamental policy, invest up to 10% of its total
assets in debt securities issued or guaranteed by governments, or agencies of
such governments, of Asian Countries or by Asian Companies, including unrated
debt securities and debt securities rated below investment grade. The market
value of debt securities generally varies in response to changes in interest
rates and the financial conditions of each issuer. During periods of declining
interest rates, the value of debt securities generally increases. Conversely,
during periods of rising interest rates, the value of such securities generally
declines. These changes in market value will be reflected in the Fund's net
asset value.
The Fund may invest in debt securities rated below BBB by S&P, Baa by
Moody's or equivalent ratings by other recognized securities rating agencies
that may from time to time rate securities of Asian Countries or Asian
Companies. Such debt securities involve greater risks of loss of income and
principal than higher rated securities, are speculative in nature, and are
commonly known as "high yield" securities or "junk bonds." Although high risk,
low rated debt securities and comparable unrated debt securities may offer
higher yields than do higher rated securities, they generally involve greater
volatility of price and risk of principal and income. Securities having the
lowest rating for non-subordinated debt instruments assigned by S&P and Moody's
(i.e., rated CCC by S&P or C by Moody's) are considered to have extremely poor
prospects of ever attaining any real investment standing; to be unlikely to have
the capacity to pay interest or repay principal when due in the event of adverse
business, financial or economic conditions; and/or to be in default or not
current in the payment of interest or principal. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of low rated debt securities, especially in a
thinly traded market. Analysis of the creditworthiness of issuers of low rated
debt securities may be more complex than for issuers of higher rated securities,
and the ability of the Fund to achieve its investment objective may, to the
extent of investment in low rated debt securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses in
seeking recovery.
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NON-U.S. SUBCUSTODIANS AND SECURITIES DEPOSITORIES
Rules adopted under the 1940 Act permit the Fund to maintain its non-U.S.
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks outside the U.S. may not be eligible
subcustodians for the Fund under such rules, in which event the Fund may be
precluded from purchasing securities in which it would otherwise invest, and
other banks that are eligible non-U.S. subcustodians may be recently organized
or otherwise lack extensive operating experience. In addition, in certain
countries, such as Korea, there may be legal restrictions or limitations on the
ability of the Fund to recover assets held in custody by non-U.S. subcustodians
in the event of the bankruptcy of the subcustodian.
MANAGEMENT OF THE FUND
The management of the Fund, including general supervision of the duties
performed by the Investment Manager under the Investment Management Agreement
(as defined herein), is the responsibility of its Board of Directors. For
certain information regarding the directors and officers of the Fund, see
"Management of the Fund--Directors and Officers" in the SAI.
While the Fund is a Maryland corporation, certain of its directors and
officers are non-residents of the United States and have all, or a substantial
part, of their assets located outside the United States. None of such directors
or officers has authorized an agent for service of process in the United States.
As a result, it may be difficult for U.S. investors to effect service of process
upon such directors or officers within the United States or effectively to
enforce judgments of courts of the United States predicated upon civil
liabilities of such directors or officers under the Federal securities laws of
the United States. In addition, such civil remedies as are afforded by the
Federal securities laws of the United States may not be enforceable in England,
the residence of the non-U.S. resident directors and officers of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
Schroder Capital Management International Inc., a New York corporation with
offices at 787 Seventh Avenue, New York, New York, serves as Investment Adviser
to the Fund. The Investment Adviser is a wholly-owned indirect subsidiary of
Schroders plc, the London Stock Exchange listed holding company of an investment
banking and investment management group of companies that dates its origins to
1804. The Schroder Group has been managing international investment portfolios
since the early years of this century. At December 31, 1995, the Schroder Group
had over $100 billion under management for a wide range of investment companies
and institutional clients in many nations. The investment management operations
of the Schroder Group are located in 17 countries around the world, including
seven in Asia.
The Investment Adviser believes that one of its key strengths is its access
to the Schroder Group's extensive network of research offices, many long
established, in Tokyo, Hong Kong, Singapore, Seoul, Taipei, Jakarta and Kuala
Lumpur, staffed by 38 investment professionals including 20 analysts, and a team
of about seven Asian specialists in London.
The Investment Adviser is registered under the Investment Advisers Act of
1940, as amended, and was established in 1980 to provide international
investment advice to U.S. clients from its New York and London, England,
offices. Together with its U.K. affiliate, Schroder Capital Management
International Ltd., the Investment Adviser had over $15.9 billion under
management at December 31, 1995, of which approximately $6 billion was invested
in the Asian region.
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Laura Luckyn-Malone and Heather F. Crighton, with the assistance of an
investment committee, are the individuals with primary responsibility for the
portfolio management of the Fund. Laura Luckyn-Malone has been a senior vice
president and director of the Investment Adviser since 1990 and a managing
director of the Investment Adviser since 1995. Prior to joining the Schroder
Group, Ms. Luckyn-Malone was a principal with Scudder, Stevens & Clark, Inc.,
which she joined in 1985. She has over 10 years of experience in managing client
assets invested in Asian Countries. Heather F. Crighton has been a vice
president of the Investment Adviser since 1993. Prior to joining the Schroder
Group, Ms. Crighton was a fund manager at Mercantile and General Reinsurance
Co., which she joined in 1988. She has over 8 years of experience in managing
client assets invested in Asian Countries.
The Investment Adviser's approach to selecting investments emphasizes
fundamental company analysis (rather than broader industry or sector analyses).
The Investment Adviser seeks to identify those markets or regions where, based
on its assessment of future economic activity, it believes there is likely to be
a favorable long-term business environment, and where a company's growth is less
likely to be impeded by adverse macroeconomic or political factors. The
Investment Adviser's stock selection then focuses on companies within these
areas which it believes have a sustainable competitive advantage and whose
growth potential is undervalued by investors. In selecting companies for
investment, the Investment Adviser will consider historical growth rates and
future growth prospects, management capability, the ability of the company to
access capital, government regulation, market share, profit margins, competitive
position in both domestic and export markets and other factors.
Each year, the Schroder Group generally researches and screens for
investment potential more than 1,500 companies in the Asian Countries. Of those
companies, the Schroder Group's investment professionals further develop
extensive management contacts, including on-site visits, with approximately 500
companies. The Investment Adviser's analysis includes small and medium-sized
companies, as well as the better-known larger capitalization companies. The
Investment Adviser believes that smaller companies are analyzed by fewer
investors and are less likely than larger companies to be efficiently priced.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Fund and the Investment
Adviser (the "Investment Advisory Agreement"), the Investment Adviser manages
the Fund's assets in accordance with the Fund's stated investment objective,
policies and restrictions and subject to the supervision of the Fund's Board of
Directors, and makes investment decisions on behalf of the Fund, including the
selection of, and placement of orders with, brokers, dealers and banks to
execute portfolio transactions on behalf of the Fund.
For its services, the Investment Adviser receives a monthly fee, payable in
arrears in U.S. Dollars, at an annual rate of 1.00% of the Fund's average weekly
net assets. This fee is higher than those paid by most other management
investment companies, primarily because of the additional time and expense
required of the Investment Adviser in pursuing the Fund's policy of investing in
equity securities of Asian Companies. In addition, the operating expense ratio
of the Fund, which includes the expenses of the Fund such as custodial, currency
exchange and communication costs, can be expected to be higher than that of a
fund investing primarily in securities of U.S. issuers. The Investment Adviser
believes, however, that the Fund's investment advisory fee, as well as its
overall expense ratio, are comparable to
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those of many management investment companies of comparable size that invest
primarily in securities of Asian Companies or other emerging market issuers.
The Fund will pay or cause to be paid all of its expenses, including: fees
paid to the Investment Adviser and the Administrator; organization expenses
(which include out-of-pocket expenses, but not overhead or employee costs, of
the Investment Adviser); charges and expenses of any custodian, subcustodian or
depositary appointed by the Fund for the safekeeping of its cash, securities or
property and fees and expenses of any transfer agent, dividend paying agent and
registrar for the Fund; charges and expenses of accounting and auditing;
expenses and fees associated with registering and qualifying securities issued
by the Fund for sale with the Commission and in various states and non-U.S.
jurisdictions and expenses of preparing share certificates and other expenses in
connection with the issuance, offering or underwriting of securities issued by
the Fund, including stock exchange listing fees and freight insurance and other
charges in connection with the shipment of the Fund's portfolio securities;
expenses of stationery, preparing, printing and distributing reports, notices
and dividends and other documents to the Fund's shareholders, including, without
limitation, expenses of tender offers for and repurchases of securities issued
by the Fund, to the extent not borne by the Fund's Administrator; interest on
any indebtedness of the Fund; governmental fees and taxes of the Fund, including
any stock transfer tax payable on a portfolio security of the Fund; brokerage
commissions and other expenses incurred in acquiring or disposing of the Fund's
portfolio securities; costs of directors' and officers' insurance and fidelity
bonds; compensation and expenses of the directors who are not interested persons
of the Investment Adviser, including out-of-pocket travel expenses; costs and
expenses incidental to holding meetings of the Board of Directors, or any
committees thereof, or shareholders' meetings, including out-of-pocket travel
expenses of directors and officers of the Fund who are directors, officers or
employees of the Investment Adviser to the extent that such expenses relate to
attendance at such meetings; fees for legal, auditing and consulting services
and litigation expenses, including settlement or arbitration costs; dues and
expenses incurred in connection with membership in investment company
organizations and expenses relating to investor and public relations; and costs,
expenses and fees incurred in connection with obtaining, maintaining,
refinancing or repaying indebtedness.
THE ADMINISTRATOR
Princeton Administrators L.P. (the "Administrator"), 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, has entered into an Administration Agreement with
the Fund. The Administrator performs or arranges for the performance of the
administrative services (i.e., services other than investment advice and related
portfolio activities) necessary for the operation of the Fund, including
maintaining certain of the books and records of the Fund, preparing certain
reports and other documents required by U.S. Federal securities laws and
regulations and providing the Fund with administrative office facilities.
For its services, the Administrator receives a monthly fee, payable in
arrears in U.S. Dollars, equal to the greater of (i) $150,000 per annum ($12,500
per month) and (ii) at the annual rate equal to 0.25% of the Fund's average
weekly net assets. The Administrator is relieved of liability to the Fund for
any act or omission in the course of its performance under the Administration
Agreement, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties. The Administration Agreement may be terminated
by either party at any time on 90 days' written notice without payment of any
penalty, and will terminate automatically in the event of its assignment.
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DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and any net long-term capital
gains in excess of net short-term capital losses (including any capital loss
carryover). Net investment income includes dividends, interest and any net
short-term capital gains in excess of net long-term capital losses (including
any capital loss carryover), net of expenses. See "Taxation--U.S. Federal Income
Taxes."
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), each
shareholder that elects to do so will have all distributions (net of any
applicable U.S. withholding tax) reinvested automatically in additional shares
of the Fund by State Street Bank and Trust Company (the "Plan Agent") as agent
under the Plan. All distributions to investors who do not participate in the
Plan will be paid (net of any applicable U.S. withholding tax) by check mailed
directly to the record holder (or, if the shares are held in street or other
nominee name, then to such nominee), by State Street Bank and Trust Company, as
dividend paying agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares a dividend or capital gains
distribution payable either in the Fund's shares or in cash, as shareholders may
have elected, participants in the Plan will receive shares of the Fund, as
outlined below. Whenever market price per share is equal to or exceeds net asset
value as of the valuation date, participants will be issued shares of the Fund
at a price per share equal to the greater of (a) the net asset value per share
on that date or (b) 95% of the market price of the Fund's shares on that date.
The valuation date will be the dividend or distribution payment date or, if that
date is not a trading day on the NYSE, the immediately preceding trading day.
The Fund will not issue shares under the Plan at a price below net asset value.
If net asset value exceeds the market price of Fund shares as of the valuation
date, or if the Fund should declare a dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants, buy
Fund shares in the open market, on the NYSE or elsewhere, for the participants'
accounts on or shortly after the payment date. If, before the Plan Agent has
completed its purchases, the market price exceeds the net asset value of a Fund
share, the average per share purchase price paid by the Plan Agent may exceed
the net asset value of the Fund's shares, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution had been paid in
shares issued by the Fund.
A shareholder may elect to withdraw from the Plan at any time upon written
notice to the Plan Agent. When a participant withdraws from the Plan, or upon
termination of the Plan as provided below, certificates for whole shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fractional shares credited to such account. An election to
withdraw from the Plan will, until such election is changed, be deemed to be an
election by a shareholder to take all subsequent dividends and distributions in
cash. Elections will be effective immediately if notice is received by the Plan
Agent not less than ten days prior to any dividend or distribution record date;
otherwise such termination will be effective after the investment of the then
current dividend or distribution. If a withdrawing shareholder requests the Plan
Agent to sell the shareholder's shares upon withdrawal from participation in the
Plan, the withdrawing shareholder will be required to pay a $2.50 fee plus
brokerage commission.
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The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in noncertificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
In the case of shareholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There is no charge by the Fund to participants for reinvesting dividends or
capital gains distributions. The Plan Agent's fee for the handling of
reinvestment of dividends and distributions will be paid by the Fund. There will
be no brokerage charges with respect to shares issued directly by the Fund as a
result of dividends or capital gains distributions payable either in shares or
in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. Federal income tax that may be payable on such
dividends or distributions. To the extent dividends and distributions are
reinvested in additional shares issued by the Fund, participants should be
treated for U.S. Federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the valuation date, of
the shares received (regardless of the net asset value of the shares on the
valuation date), and should have a cost basis in such shares equal to such fair
market value.
Experience under the Plan may indicate that changes thereto may be
desirable. Accordingly, the Fund reserves the right to amend or terminate the
Plan as applied to any dividend or distribution paid (i) subsequent to notice of
the change sent to all shareholders of the Fund at least 90 days before the
record date for such dividend or distribution or (ii) otherwise in accordance
with the terms of the Plan. The Plan also may be amended or terminated by the
Plan Agent by at least 90 days' prior written notice to all shareholders of the
Fund. All correspondence concerning the Plan should be directed to the Plan
Agent at State Street Bank and Trust Company, P.O. Box 8200, Boston,
Massachusetts 02266-8200.
TAXATION
For a discussion of U.S. Federal income tax consequences to Record Date
Shareholders with respect to the Offer, see "The Offer--U.S. Federal Income Tax
Consequences of the Offer." For a discussion of certain other U.S. tax matters
applicable to the Fund and its shareholders, see "Taxation" in the SAI.
Shareholders should consult their tax advisers concerning their own particular
situations, including the potential application of state, local and non-U.S.
taxes to their ownership and disposition of shares of the Fund.
35
<PAGE>
U.S. FEDERAL INCOME TAXES
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS A SUMMARY INCLUDED
FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE OF TAX
CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF BEING A SHAREHOLDER OF THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES THEREIN.
The Fund has qualified and intends to continue to qualify to be treated as a
regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the test for such status. The Fund intends
to distribute to its shareholders each year all of its net investment income as
computed for U.S. Federal income tax purposes. Such distributions will, in
general, be taxable to shareholders. Shareholders not subject to tax on their
income generally will not be required to pay tax on amounts distributed to them.
The Fund will inform shareholders of the amount and nature of distributions made
by the Fund.
The Board of Directors will determine each year whether to distribute any
net long-term capital gains in excess of any net short-term capital losses
(including in such losses any capital loss carryovers from prior years) as
computed for U.S. Federal income tax purposes. The Fund presently expects to
distribute such excess to its shareholders each year. As of October 31, 1995,
the Fund had net unrealized appreciation on its investments of $ and a
capital loss carryover of $32,064,584 (of which $ expires in and
$ expires in ).
Dividend distributions paid out of the Fund's net investment income
(including short-term capital gains) will be taxable to a U.S. shareholder as
ordinary income, whether received in cash or reinvested in shares. Dividends
paid by the Fund will not qualify for the deduction (currently 70%) for
dividends received by corporations because the Fund's income is not expected to
consist of dividends paid by U.S. corporations. Distributions of net long-term
capital gains (i.e., capital gains from securities held for more than one year),
if any, are taxable as long-term capital gains, whether received in cash or
reinvested in shares, regardless of how long the shareholder has held the Fund's
shares and are not eligible for the dividends-received deduction. Dividends of
net investment income and distributions of net long-term capital gains paid by
the Fund that (i) are declared in October, November or December, (ii) are
payable to holders of record as of a date in such a month, and (iii) are paid
during the following January, will be treated by shareholders as if received on
December 31 of the calendar year in which declared.
The Fund has adopted a Dividend Reinvestment Plan (the "Plan"). See
"Dividends and Distributions; Dividend Reinvestment Plan." Shareholders
reinvesting distributions in additional shares issued by the Fund through
participation in the Plan should be treated for U.S. Federal income tax purposes
as receiving a distribution in an amount equal to the fair market value,
determined as of the distribution date, of the shares received (whether the fair
market value is less than or greater than the net asset value of the shares on
the distribution date), and should have a cost basis in such shares equal to
such fair market value.
36
<PAGE>
The Fund will be subject to non-U.S. income taxes, including withholding
taxes. The imposition of such taxes and the rates imposed are subject to change.
The Fund expects to be eligible to elect, and will notify shareholders if it so
elects, to "pass-through" to the Fund's shareholders the amount of such non-U.S.
withholding taxes. If the Fund makes such an election, shareholders will be
required to include in income their proportionate shares of such amount. U.S.
shareholders may be entitled to claim a credit or deduction for all or a portion
of such amount. However, non-U.S. shareholders may not be able to claim a credit
or deduction with respect to such amount.
The Fund may be required to withhold for U.S. Federal income tax purposes
31% of all distributions payable to shareholders (not otherwise exempt from such
withholding) who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding.
See "Annual Tender Offers and Repurchases of Shares" in this Prospectus and
"Management of the Fund--Additional Information Regarding Annual Tender Offers
and Repurchases of Shares" in the SAI for a discussion of the U.S. Federal
income tax consequences to shareholders of such offers and repurchases.
NON-U.S. TAXATION
The Fund will be subject to taxes, including withholding taxes on income and
capital gains, that are or may be imposed by certain of the Asian Countries.
Such taxes will reduce the Fund's return on its investments. These taxes, to the
extent treated as income taxes for U.S. Federal income tax purposes, may be
deductible or creditable in whole or in part by U.S. shareholders of the Fund
for such purposes if the Fund so elects when eligible. See "Taxation--U.S.
Federal Income Taxes" above and "Taxation-- U.S. Federal Income Taxes--Non-U.S.
Income Taxes" in the SAI.
COMMON STOCK
The authorized stock of the Fund is 100,000,000 shares of Common Stock
($0.01 par value). As of , 1996, the Fund had outstanding 19,607,100
shares of Common Stock. To the best of the Fund's knowledge, no person owned
beneficially more than 5% of its outstanding shares at such date. The currently
outstanding shares are, and the Shares when issued in the Offer will be, fully
paid and non-assessable and have conversion, preemptive or other subscription
rights. Holders of shares are entitled to one vote per share on all matters to
be voted upon by shareholders and are not able to cumulate their votes in the
election of directors. Thus, holders of more than 50% of the shares voting for
the election of directors have the power to elect 100% of the directors. Under
the rules of the NYSE, the Fund is required to hold an annual meeting of
shareholders. [The Fund's next annual meeting will be held at on
, 1996. On , 1996, the Fund filed a preliminary proxy
statement with the Commission. Shareholders of record as of will be
entitled to vote on matters brought before the annual meeting.] All shares are
equal as to assets, earnings and the receipt of dividends, if any, as may be
declared by the Board of Directors out of funds available therefor. In the event
of liquidation, dissolution or winding up of the Fund, each share is entitled to
receive its proportion of the Fund's assets remaining after payment of all debts
and expenses.
37
<PAGE>
Offerings of shares of the Fund require approval of the Fund's Board of
Directors. Any such offerings would also be subject to the requirements of the
1940 Act, including the requirement that shares may not be sold at a price below
the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Fund's outstanding voting securities. The
Board of Directors of the Fund approved the Offer at a meeting held on
. For information regarding the approval of the Offer by the
Board of Directors, see "The Offer--Purpose of the Offer."
The Fund is a closed-end investment company, and as such its shareholders do
not have the right to cause the Fund to redeem their shares. The Fund, however,
may repurchase shares from time to time in the open market or in private
transactions when it can do so at prices at or below the current net asset value
per share on terms that represent a favorable investment opportunity. In
addition, the Fund will, under certain circumstances, make annual tender offers
for its shares commencing in the first quarter of 1997. See "Annual Tender
Offers and Repurchases of Shares," including the discussion therein of the U.S.
Federal income tax consequences to shareholders of such offers and repurchases.
If the discount from net asset value at which the Fund's shares are traded
is deemed substantial in light of then existing market conditions, the Board of
Directors of the Fund may consider taking other actions designed to eliminate
the discount, including periodic repurchases of shares in any existing secondary
trading market for the shares or periodic repurchase offers made to all
shareholders or amendments to the Fund's Articles of Incorporation to convert
the Fund to an open-end investment company.
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund, to cause it to engage in certain transactions or to modify its
structure, such as by converting the Fund into an open-end investment company.
The Board of Directors is divided into three classes. At the annual meeting of
stockholders each year, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors. No director may be removed without cause by shareholders of the Fund.
The vote of the holders of two-thirds of the shares of the Fund is required
to authorize any of the following transactions:
(i) merger or consolidation of the Fund with or into any other
corporation, or the sale of substantially all of the Fund's assets to any
other corporation;
(ii) the dissolution of the Fund;
(iii) any stockholder proposal as to specific investment decisions made
or to be made with respect to the Fund's assets;
(iv) any amendment to the Fund's Articles of Incorporation to make the
Fund's shares a "redeemable security" (i.e., to cause the Fund to become an
open-end investment company).
38
<PAGE>
Reference is made to the Articles of Incorporation and Bylaws of the Fund,
on file with the Commission, for the full text of these provisions. See
"Additional Information." These provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund in a tender offer or similar transaction. The Board of Directors has
determined that the foregoing voting requirements, which are generally greater
than the minimum requirements permitted under Maryland law and the 1940 Act, are
in the best interests of shareholders generally.
In addition, in the opinion of the Investment Adviser, these provisions
offer several advantages. They may require persons seeking control of the Fund
to negotiate with its management regarding the price to be paid for the shares
required to obtain such control, they promote continuity and stability and they
enhance the Fund's ability to pursue long-term strategies that are consistent
with its investment objective.
ANNUAL TENDER OFFERS AND REPURCHASES OF SHARES
In recognition of the possibility that the Fund's shares might trade at a
discount to net asset value, the Board of Directors of the Fund has determined
that it would be in the best interests of shareholders of the Fund to take
action to attempt to reduce or eliminate a market value discount from net asset
value. To that end, the Board of Directors of the Fund has determined that
annual tender offers for shares may help reduce any market discount that may
develop. In this connection, during the first calendar quarter of each calendar
year commencing in 1997, the Board of Directors of the Fund has committed to
conduct a tender offer for shares on an annual basis. During the fourth quarter
of the previous calendar year, the Board of Directors shall fix in advance a
period of 12 consecutive calendar weeks beginning during such fourth calendar
quarter and ending in the immediately following first quarter for the purpose of
calculating the average trading price of the Fund's shares. In the event that
the average of the closing prices of the shares of the Fund for the second to
last trading day in each week during such 12-week period, on the principal
securities exchange where listed, presents a discount of 3% or more from the
average net asset value of the Fund as determined on the same days in the same
period, a tender offer for the shares of the Fund will be conducted during such
first calendar quarter. In addition, the Board may consider from time to time
open market repurchases of the Fund's shares or converting the Fund into an
open-end investment company. Prior to approving the Offer, the Board of
Directors will consider the impact of the Offer on the discount of the Fund, and
the possibility that the Offer may have the effect of increasing the discount.
See "The Offer--Purpose of the Offer."
Subject to the Fund's investment restrictions with respect to borrowings,
the Fund may incur debt to finance tender offers and/or repurchases. See
"Investment Restrictions" in the SAI. Interest on any such borrowings will
reduce the Fund's net investment income, and any such borrowings are subject to
special considerations.
No assurance can be given that annual tender offers or repurchases of shares
will reduce or eliminate any market discount from net asset value of the Fund's
shares. The market price of the Fund's shares has varied, and the Fund expects
such price will continue to vary from time to time from net asset value. Since
the commencement of trading in the Fund's shares on December 22, 1993, the
shares have usually traded at a discount from net asset value. See "Market and
Net Asset Value Information." The
39
<PAGE>
market price of the Fund's shares will, among other things, be determined by the
relative demand for and supply of shares in the market, the Fund's investment
performance, the Fund's dividends and yield and investor perception of the
Fund's overall attractiveness as an investment as compared with other investment
alternatives. Nevertheless, the fact that the Fund's shares may be subject to
tender offers at net asset value from time to time may reduce the spread between
market price and net asset value that might otherwise exist. In the opinion of
the Investment Adviser, sellers may be less inclined to accept a significant
discount if they have a reasonable expectation of being able to recover net
asset value in conjunction with an annual tender offer.
For additional information regarding the U.S. Federal income tax
consequences to shareholders of tender offers and share repurchases, see
"Management of the Fund--Additional Information Regarding Annual Tender Offers
and Repurchases of Shares" in the SAI.
Any tender offer made by the Fund for its shares will be at a price equal to
the net asset value of the shares on a date subsequent to the Fund's receipt of
all shares which shareholders choose to tender. During the pendency of any
tender offer by the Fund, the Fund will calculate daily the net asset value of
the shares and will establish procedures which will be specified in the tender
offer documents, to enable shareholders to ascertain readily such net asset
value. Each offer will be made and shareholders notified in accordance with the
requirements of the 1934 Act and the 1940 Act, either by publication or mailing
or both. Each offering document will contain such information as is prescribed
by such laws and the rules and regulations promulgated thereunder, including
information for shareholders to consider in deciding whether to tender shares
and detailed instructions on how to tender shares. When a tender offer is
authorized to be made by the Fund's Board of Directors, a shareholder wishing to
accept the offer will be required to tender all (but not less than all) of the
shares owned by such shareholder (or attributed to him for U.S. Federal income
tax purposes under Section 318 of the Code) unless the Fund has received a
ruling from the Internal Revenue Service, or an opinion satisfactory to it, that
a tender of less than all of a shareholder's shares will not cause certain
adverse tax consequences with respect to non-tendering shareholders. There can
be no assurance that the Fund will receive such a ruling or opinion.
Although the Board of Directors believes that tender offers and share
repurchases generally would have a favorable effect on the market price of the
Fund's shares, the repurchase of shares by the Fund will decrease the total
assets of the Fund and, therefore, have the effect of increasing the Fund's
expense ratio. Because of the nature of the Fund's investment objective and
policies and the Fund's portfolio, the Investment Adviser does not anticipate
that tender offers and repurchases should have a materially adverse effect on
the Fund's investment performance and does not anticipate any material
difficulty in disposing of portfolio securities in order to consummate tender
offers and share repurchases.
Although the Board of Directors has committed to annual tender offers under
the circumstances set forth above, it is the directors' announced policy, which
may be changed by the directors, that the Fund cannot accept tenders or effect
repurchases if, among other things, there is any event or condition which could
have a material adverse effect on the Fund or its shareholders if shares were
repurchased, or if the Board of Directors determines that effecting any such
transaction would constitute a breach of the directors' fiduciary duties owed to
the Fund or its shareholders.
40
<PAGE>
For additional information, including additional information regarding the
circumstances under which the Fund will not accept tenders or effect
repurchases, see "Management of the Fund--Annual Tender Offers and Repurchases
of Shares" in the SAI.
DISTRIBUTION ARRANGEMENTS
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York
10019, will act as Dealer Manager for the Offer. Under the terms and subject to
the conditions contained in a Dealer Manager Agreement dated the date hereof,
the Dealer Manager will provide financial advisory services and marketing
assistance in connection with the Offer and will solicit the exercise of Rights
by Record Date Shareholders. The Offer is not contingent upon any number of
Rights being exercised. The Fund has agreed to pay the Dealer Manager a fee for
financial advisory services equal to % of the Subscription Price per Share
for Shares issued upon exercise of the Rights and pursuant to the Over-
Subscription Privilege and to pay broker-dealers, including the Dealer Manager,
fees for their soliciting efforts (the "Solicitation Fees") of % of the
Subscription Price per Share for each Share issued upon exercise of the Rights
and pursuant to the Over-Subscription Privilege. Solicitation Fees will be paid
to the broker-dealer designated on the applicable portion of the Subscription
Certificates or, if no broker-dealer is so designated, to the Dealer Manager.
In addition, the Fund has agreed to reimburse the Dealer Manager up to
$ for its reasonable expenses incurred in connection with the Offer. The
Fund has agreed to indemnify the Dealer Manager or contribute to losses arising
out of certain liabilities, including liabilities under the Securities Act. Such
indemnity is not available in instances involving the bad faith, willful
misfeasance, or gross negligence of the Dealer Manager or reckless disregard by
the Dealer Manager of its obligations and duties under the Dealer Manager
Agreement.
The Fund has agreed not to offer or sell, or enter into any agreement to
sell, any equity or equity related securities of the Fund or securities
convertible into such securities for a period of 180 days after the date of the
Dealer Manager Agreement without the prior consent of the Dealer Manager except
for the Shares and Common Stock issued in reinvestment of dividends or
distributions.
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
The Chase Manhattan Bank, N.A., Global Custody Division, Chase MetroTech
Center, Brooklyn, New York 11245, is the custodian of the Fund's assets. The
custodian may employ subcustodians outside the United States approved by the
Board of Directors in accordance with the provisions of the 1940 Act. State
Street Bank and Trust Company, P.O. Box 8200, Boston, Massachusetts 02260-8200
is the transfer agent, dividend paying agent and registrar for the Fund.
41
<PAGE>
EXPERTS
The financial statements included in the SAI have been audited by Coopers &
Lybrand L.L.P., independent accountants, 1301 Avenue of the Americas, New York,
New York, as indicated in their report with respect thereto, and have been
included in reliance upon the authority of said firm as experts in giving said
report.
VALIDITY OF THE SHARES
The validity of the Shares offered hereby will be passed on for the Fund by
Debevoise & Plimpton, New York, New York, and for the Dealer Manager by Skadden,
Arps, Slate, Meagher & Flom, Chicago, Illinois.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and the Commission's regional offices at 7 World Trade Center, New
York, New York 10048 and 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Fund's shares of Common Stock are listed on the NYSE and
reports and other information concerning the Fund can be inspected at such
exchange.
The Registration Statement relating to the Shares has been filed by the Fund
with the Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement, including any exhibits and schedules
thereto. For further information with respect to the Fund, the Offer and the
Shares offered hereby, reference is made to the Registration Statement, of which
this Prospectus and the SAI incorporated herein by reference constitute a part.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
42
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions............................................................... 2
Certain Investment Practices.......................................................... 3
Management............................................................................ 9
Net Asset Value....................................................................... 17
Taxation.............................................................................. 18
Portfolio Transactions and Brokerage.................................................. 24
Financial Statements.................................................................. F-1
Report of Independent Accountants..................................................... F-2
</TABLE>
43
<PAGE>
ANNEX A
ASIAN ECONOMIES & STOCK MARKETS
[TO BE UPDATED]
The Asian continent covers approximately one-fifth of the earth's surface
and is home to over half the world's population. The Fund's investment focus
does not include the countries contained in the areas of Asia west of the
Pakistan border and north of the continent's southernmost border of the former
Soviet Union. The discussion below focuses on the 11 Asian Countries in which
the Fund generally invests. Data on the United States appears for comparative
purposes.
ASIAN ECONOMIES
Background
During the past 14 years, countries in the Asian region have experienced
real economic growth rates exceeding those experienced by many Western
industrialized countries. As Table 1 shows, all of the economies of the Asian
Countries listed therein, except for that of the Philippines, grew faster than
that of the United States. The fastest growing economy in Asia between 1980 and
1994 was China, with an average annual growth rate of 10.1%, followed by Korea,
with an annual average growth rate of 8.9%. See "Certain Recent Developments in
Korea, China and Hong Kong" below in this Annex A.
TABLE 1
REAL GDP
<TABLE>
<CAPTION>
AVERAGE REAL GDP
GROWTH FOR THE PERIOD NOMINAL GDP
1980-1994 1993
--------------------- --------------
<S> <C> <C>
(%) (US$ BILLIONS)
<CAPTION>
<S> <C> <C>
China........................................................ 10.1 577
Hong Kong*................................................... 6.7 105
India*....................................................... 5.2 269
Indonesia.................................................... 5.8 139
Japan........................................................ 3.5 3,920
Korea........................................................ 8.9 338
Malaysia*.................................................... 6.2 60
Philippines.................................................. 1.3 55
Singapore.................................................... 7.0 56
Taiwan*...................................................... 7.4 222
Thailand*.................................................... 8.0 123
United States................................................ 2.7 6,378
</TABLE>
- - ------------
Source: World Bank: World Development Report 1995; International Monetary Fund,
World Economic Outlook, October 1995.
* Source: Statistical Yearbook, 1994.
A-1
<PAGE>
(a) China: GNP
The Fund's Investment Adviser believes that existing economic conditions in
the Asian region provide for high levels of economic activity in the long-term,
offering the potential for long-term capital appreciation from investment in
equity securities of Asian Companies. See generally, "Investment in Asia" in the
Prospectus. Among these conditions, discussed in turn below, are the following:
(1) the increasing industrialization of Asian economies, (2) favorable
demographics and competitive wage rates, (3) high rates of domestic savings
available to fund investment, particularly in the area of infrastructure, (4)
the ability to attract foreign direct investment, (5) the emergence of a
regional trading zone and (6) rising per capita incomes available to support
local markets for consumer goods.
Industrialization of Asia
The rapid ongoing shift from primary industries into industrial
manufacturing has contributed to high rates of economic activity, as shown in
Table 2. Between 1970 and 1993, there has been a significant shift in the
percentage of GDP accounted for by the agricultural sector in these markets and
a marked increase in output by the industrial sector, most markedly in Korea,
Indonesia and Malaysia. In Japan and Hong Kong, the most developed economies in
the region, there has been a transition away from industry in favor of the
service sector which accounted for 57% and 79%, respectively, of 1993's GDP, a
trend also followed in the United States. Generally in the Asian Countries there
is still potential for further industrialization so as to reach the levels
presently attained by the countries of the industrialized world. For example, as
shown in Table 2, in China, India, Indonesia and the Philippines, agriculture
accounted for an average of approximately 23% of GDP in 1993. Even though
agricultural output accounts for a declining portion of overall GDP, over 40% of
the world's total cereal production came from countries in the Asian region in
1992, including 85% of total rice production. Therefore, the incidence of
monsoon and other weather-related conditions can have a significant positive or
negative impact on the annual GDP of the region's agriculture-based economies.
TABLE 2
BREAKDOWN OF GDP: PERCENTAGES FOR AGRICULTURE,
INDUSTRY AND SERVICES
<TABLE>
<CAPTION>
AGRICULTURE
(%) INDUSTRY (%) SERVICES (%)
------------ ------------ ------------
1970 1993 1970 1993 1970 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
China................................................... 34 19 38 48 28 33
Hong Kong............................................... 2 0 36 21 62 79
India................................................... 45 31 22 27 33 41
Indonesia............................................... 45 19 19 39 36 42
Japan................................................... 6 2 47 41 47 57
Korea................................................... 26 7 29 43 46 50
Malaysia................................................ 29 16 25 44 46 40
Philippines............................................. 30 22 32 33 39 45
Singapore............................................... 2 0 30 37 68 63
Taiwan.................................................. 13 3 44 42 43 55
Thailand................................................ 26 10 25 39 49 51
United States........................................... 3 1 54 44 43 55
</TABLE>
- - ------------
Sources: World Bank: World Development Report 1995; Asian Development Bank: Key
Indicators of Developing Asian and Pacific Economies 1995; United States 1991
statistics: U.S. Department of Commerce, National Income and Product Accounts
1993; 1970 statistics: Aremos database.
A-2
<PAGE>
Favorable Demographics and Competitive Wages
Based on favorable demographic statistics as to the Asian Countries relative
to the United States and Western Europe and the existence in the region of low
relative wage rates, the Investment Adviser believes that the competitive
advantages of Asia, particularly access to a large pool of disciplined and low
cost (and in East Asia, well educated) labor, will continue to lead to high
levels of inward capital investment by companies based in the industrialized
world. Moreover, the demographic profile of Asian Countries, as shown in Table 3
below, shows a plentiful potential supply of new labor force participants as
indicated by the high percentage of the populations under 15 years of age. In
this respect, India, Indonesia, Malaysia, the Philippines and Thailand are well
positioned. The larger this percentage, the lower the likelihood of significant
upward pressure on wage rates over the medium term, thus ensuring a continuation
of the current, favorable cost structure these countries enjoy relative to the
United States and Japan. In addition, these countries in particular need to
maintain a sufficient level of overall economic activity in order to provide
employment opportunities to new entrants. If this cannot be achieved, as in the
case of the Philippines, the export of labor may occur. Direct investment and
the establishment of labor intensive industries, such as textiles, have had a
favorable impact on job creation in the Asian region. However direct investment
may be deterred by the absence of basic infrastructure such as energy, telephone
lines, ports, roads and railways, as has occurred in the Philippines with
shortages of electricity.
TABLE 3
DEMOGRAPHIC STRUCTURE OF ASIAN COUNTRIES: 1993
<TABLE>
<CAPTION>
1995 AVERAGE
% OF % OF % OF MANUFACTURING
POPULATION POPULATION POPULATION HOURLY WAGE
UNDER 15-64 65 AND COST IN
15 YEARS YEARS ABOVE US$(B)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
China........................................... 27 66 7 0.57
Hong Kong....................................... 21 66 9 4.89
India........................................... 36 56 4 0.35
Indonesia....................................... 36 59 4 0.75
Japan........................................... 18 69 12 23.42
Korea........................................... 25 70 4 6.25
Malaysia........................................ 39 53 2 2.26
Philippines..................................... 39 54 2 0.90
Singapore....................................... 23 66 6 7.11
Taiwan(a)....................................... 25 68 7 5.98
Thailand........................................ 32 62 2 1.14
United States................................... 22 63 12 17.63
</TABLE>
- - ------------
Source: World Bank: World Development Report 1993. Based on latest census
(1991).
(a) Source: Statistical Yearbook, 1994.
(b) Source: Data Resources Inc.--McGraw Hill
A-3
<PAGE>
Savings and Infrastructure
There is a need in the Asian Countries for substantial investment in
infrastructure. As shown in Table 4, a low penetration rate of telephone lines
per 1,000 population exists in each of China, India, Indonesia, Malaysia and
Thailand. Asia has the means to overcome the deficiency in infrastructure given
its high domestic savings rates, which are also shown in Table 4. A high rate of
savings is generally associated with strong investment, rising productivity and
faster GDP growth. Singapore, with savings equal to 47% of GDP, followed by
China at 40% and Malaysia at 38% in particular compare favorably with the United
States in this regard. The savings rates of India and the Philippines are the
lowest in the region and, in the opinion of the Investment Adviser, will have to
be raised if investment, and hence growth, is to accelerate in such countries.
China is still in the process of developing a network of financial
intermediaries capable of channeling available funds between savers and
investors, the lack of which may constrain growth in the short term.
TABLE 4
SAVINGS AND INFRASTRUCTURE
<TABLE>
<CAPTION>
1992
TELEPHONE
1993 LINES
SAVINGS AS PER 1000
% OF GDP* POPULATION**
---------- ------------
<S> <C> <C>
China................................................................ 40 10
Hong Kong............................................................ 31 485
India................................................................ 24 8
Indonesia............................................................ 31 8
Japan................................................................ 33 464
Korea................................................................ 35 357
Malaysia............................................................. 38 112
Philippines.......................................................... 16 10
Singapore............................................................ 47 415
Taiwan............................................................... 27 449(a)
Thailand............................................................. 36 31
United States........................................................ 15 565
</TABLE>
- - ------------
* Source (except as hereinafter noted): World Bank: World Bank Development
Report 1993.
(a) 1991 Data Source: Statistical Yearbook of ROC 1992.
Ability to Attract Foreign Direct Investment
Foreign direct investment has underpinned economic growth in the Asian
region. With the rapid appreciation of the Yen since the end of 1985, Japanese
investment flows have increased considerably. The Asian share of Japanese
foreign direct investment is growing: Asia attracted 21% of Japanese outflows in
the first half of 1994, up from 12% in 1989, a growing share of which is
manufacturing. In 1991 the number of offshore Japanese manufacturing
subsidiaries was higher in Asia (10,483) than in North America (5,272) and
Europe (2,216).
A-4
<PAGE>
TABLE 5
DIRECT INVESTMENT IN ASIA FROM THE U.S. AND JAPAN
(US$ IN MILLIONS)
<TABLE>
<CAPTION>
1994
-------
<S> <C>
From United States................................................................ $46,500
% of U.S. total................................................................... 7.7%
From Japan........................................................................ $76,216
% of Japanese total............................................................... 16.4%
</TABLE>
- - ------------
Sources: United States data: U.S. Department of Commerce--Survey of Current
Business; Japan data: Ministry of Finance--June 1995 International Investment
Statistics.
The Investment Adviser believes that in addition to increasing the foreign
supply of capital, direct foreign investment from Japan confers a number of
benefits which enhance the long-term growth potential of a recipient country,
including, but not limited to, (1) the mobilization of domestic savings for
productive purposes in joint ventures between multinational corporations and
local companies, (2) the improvement of local training and education as local
employees are exposed to modern production techniques and established training
methods, (3) the modernization of management and accounting, (4) a transfer of
technology and (5) the promotion of exports.
Trade and Exports
Most of the countries in the Asian region have historically pursued the
Japanese development model of export-led growth. This, together with the inflow
of foreign manufacturing facilities, has led in general to strong export sector
performances. During the 1980s, a significant proportion of Asian exports was
shipped to the United States and Europe, which resulted in severe trade account
imbalances. The appreciation of the Japanese Yen since the end of 1985, together
with increasingly persistent attempts on the part of various U.S.
administrations to lower Asian trade barriers, has resulted in a shift in the
pattern of trade. Table 6 shows that in 1994, 48.0% of Asian exports went to
Asian markets, while 51.2% of total Asian imports were from Asia. These trade
figures suggest that Asia's importance as a market in its own right is growing.
By way of comparison, in the seven years to 1992, exports from Japan to Asia
(excluding India) grew by 17.8%, from Japan to the European Community by 17.3%
and from Japan to the United States by 5.6%.
A-5
<PAGE>
TABLE 6
THE SHAPE OF INTRA-ASIAN TRADE, 1994
(US$ IN MILLIONS)
EXPORTS FROM: TO:
<TABLE>
<CAPTION>
HONG
JAPAN KOREA TAIWAN+ KONG SINGAPORE INDONESIA MALAYSIA PHILIPPINES THAILAND CHINA INDIA
------- ------- ------- ------ --------- --------- -------- ----------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Japan.... -- 24,361 23,790 25,743 19,605 7,674 12,364 5,893 14,700 18,637 1,979
Korea.... 13,523 -- 2,732 8,015 4,152 2,540 1,652 1,212 1,835 6,293 1,160
Taiwan+... 10,179 1,800 -- 13,885 3,936 1,316 5,063 1,270 2,560 14,034 268
Hong
Kong..... 5,436 2,415 3,688 -- 4,214 921 1,156 1,868 1,291 49,639 522
Singapore... 5,766 2,532 3,894 8,383 -- 1,793 19,029 1,577 5,355 2,098 1,231
Indonesia... 11,751 2,584 1,919 1,150 1,793 -- 856 362 406 1,445 213
Malaysia... 7,010 1,646 1,754 2,715 12,167 715 -- 611 2,216 1,933 527
Philippines... 2,020 291 452 651 707 72 221 -- 167 164 13
Thailand... 7,524 653 969 2,211 4,037 277 2,107 211 -- 914 166
China.... 21,490 4,376 2,242 32,366 2,563 1,052 2,118 476 1,159 -- 572
India.... 2,925 396 284 1,349 459 230 305 91 409 235 --
Imports
from
Asia..... 98,036 41,660 41,724 24,780 60,903 13,940 34,509 12,267 31,544 65,174 5,585
Total
Imports... 275,235 102,348 85,359 61,770 102,670 30,500 59,581 22,531 54,324 114,563 20,762
Asia/World
Total
(%)...... 35.6 40.7 48.9 77.1 59.3 45.7 57.9 54.4 58.0 56.9 20.9
<CAPTION>
ASIA/
WORLD
EXPORTS TOTAL TOTAL
TO ASIA** EXPORTS %
----------- --------- ----------
<S> <C> <C> <C>
Japan.... 158,396 397,005 39.9
Korea.... 44,414 96,013 46.3
Taiwan+.. 52,361 93,056 56.0
Hong
Kong..... 77,483 151,395 51.2
Singapore 55,578 96,826 57.4
Indonesia 21,323 40,054 53.2
Malaysia. 32,973 58,756 56.1
Philippin 5,067 13,342 40.0
Thailand. 19,674 41,757 47.1
China.... 70,122 119,816 58.5
India.... 6,880 25,057 27.5
544,271 1,133,077 48.0347761
Imports
from
Asia..... 530,127
Total
Imports.. 1,035,643
Asia/Worl
Total
(%)...... 51.18819902
</TABLE>
Sources: IMF Directory of Trade Statistics 1995; Taiwan: Industry of Free China
November 1995. The Economist Intelligence Unit Country Report.
+Taiwan Export data based on import statistics of trading partners. 1993 data
has been used where 1994 is not available.
Rising Per Capita Incomes
Overall economic activity in the Asian region has been supported by a rising
trend in per capita GDP. This trend is highly significant in light of the fact
that the Asian region contains three of the world's four most populous nations,
China (1.16 billion), India (876 million) and Indonesia (183 million).
Consequently, in the Investment Adviser's opinion, the prospects for the
establishment of substantial local markets for a wide range of consumer
products, both imported and locally manufactured, are attractive.
Table 7 shows 1993 per capita GDP and the potential for catch-up by the
poorer Asian Countries, such as China, India, Indonesia, the Philippines and
Thailand. Although China was the fastest growing economy in the region in 1992,
the Investment Adviser believes that on a per capita GDP basis there remains
great potential for future growth.
A-6
<PAGE>
TABLE 7
GDP PER CAPITA
(U.S.$)
<TABLE>
<CAPTION>
1993
------
<S> <C>
China............................................................. 490
Hong Kong......................................................... 18,060
India............................................................. 300
Indonesia......................................................... 740
Japan............................................................. 31,490
Korea............................................................. 7,660
Malaysia.......................................................... 3,140
Philippines....................................................... 850
Singapore......................................................... 19,850
Taiwan (a)........................................................ 10,667
Thailand.......................................................... 2,100
United States..................................................... 24,740
</TABLE>
- - ------------
Source: World Bank: World Development Report 1995
(a) Source: 1980: Statistical Yearbook of ROC 1994.
Certain Recent Developments in Korea, China and Hong Kong
Korea. Although, in general, all the necessary conditions for continuing
growth exist throughout the Asian region, it is possible that those economies
that experienced the fastest growth in GDP (as shown in Table 1 above) may not
continue to expand at such a strong pace in the future. For example, in the
Investment Adviser's opinion, Korea is unlikely to experience such high rates of
economic activity in the future. In 1992, the growth rate slowed to 4.7% as a
result of an austerity program implemented during 1991 to combat a deteriorating
trade account and rising inflation. This followed on a surge of domestic
construction spending, the purpose of which was to offset the slowing trend of
Korean exports from 1989 onwards. The competitiveness of the Korean export
sector had been affected by a substantial increase in wage rates coinciding with
Korea's shift toward a more democratic form of government and the concomitant
relaxation of trade union and press controls. Moreover, the establishment of
lower cost production bases, such as China, is providing intensifying
competition. By the end of 1992, interest rates had declined from a peak of 19%
as of the third quarter of 1991 to 13.8%. Inflation had fallen from 9.3% in 1991
to 4.5% in 1992, and the current account deficit had narrowed from $8.73 billion
to $4.5 billion over the same period. A tentative sign of rising consumer
confidence was evident in a pick-up in retail sales in May 1993. These factors,
together with the significant benefit brought to Korean exporters by the
appreciation of the Japanese Yen in 1993, lead the Investment Adviser to believe
that the Korean economy is unlikely to slow further in the near term.
China. In 1978 China's then Premier, Deng Xiaoping, initiated an open door
policy which allowed for the establishment of special economic zones and the
acceptance of foreign direct investment. As a result, there has been a move
toward a more market oriented Chinese economy. This has included a shift by
non-state enterprises into China's industrial sector. As a result, by the end of
1992, the share of the state sector in total production had steadily declined
from a peak of 90% in the 1960s to less than 50%. This reform program has
accelerated over the past two years, with the decontrol of most consumer prices.
This policy resulted in inflation rates rising to approximately a 17% annual
rate by the first quarter of 1993, and a run-down of China's exchange reserves
from $45 billion at the beginning of 1992
A-7
<PAGE>
to $21 billion at year-end. In June 1993, a partial relaxation of currency
controls was effected, which resulted in an immediate devaluation of the Yuan
Renminbi (Rmb) on the Shanghai swap market from approximately Rmb 5 per Dollar
to Rmb 10 per Dollar. The rate has since recovered slightly to approximately Rmb
9 to the Dollar. In August 1993, in the light of further elements of
overheating, an austerity program was announced by Vice Premier Zhu Rongji, head
of the People's Bank of China, which included the calling in of bank loans and
increases in interest rates by 250 basis points between June and September 1993.
It is uncertain if this program is being strictly enforced, and whether it will
be effective in cooling down the Chinese economy. The Investment Adviser
believes, however, that it is unlikely that in the long term the reform process
in China will be affected, although, in the short-term, there could be a
breakdown of consensus within the Chinese ruling party concerning the pace of
reform.
Hong Kong. Hong Kong's economy is the most likely to be affected by reform
in China. Shenzhen, one of the earliest and most successful economic zones in
China, is located close to the Hong Kong/Chinese border. Hong Kong companies
have set up a broad range of manufacturing facilities in Southern China and Hong
Kong provides an array of services to Southern China, including finance,
telecommunications, energy and management knowhow. Between 1979 and 1992 Hong
Kong accounted for almost 60% of direct foreign investment into China. In 1992
Hong Kong's real growth accelerated to 5%, the fastest rate since 1988, led by
the boom in the neighboring Chinese provinces. Consequently Hong Kong's
inflation rate rose to 7.9% by September 1993. Although the Hong Kong Dollar has
been pegged to the U.S. Dollar at a rate of HK$7.8 to US$1.00 since October
1983, it is possible, in the Investment Adviser's opinion, that if the Chinese
economy were slow to respond to the recent tightening in economic policy, a
revaluation of this fixed exchange rate could occur. Such a measure would raise
export prices and dampen export sales while lowering the prices of imports.
Given the size of the combined trade deficit that exists between the United
States, China and Hong Kong, which was in excess of $19 billion in 1992, it is
unlikely that the United States would oppose such a move.
ASIAN SECURITIES MARKETS
Historical Development
There has been no set pattern to the historical developments of the stock
markets in the region. Some stock exchanges, such as that in Bombay, India, have
been operating since as early as 1875, while the Shenzhen Exchange in China, the
most recently established, has operated only since 1991. Additionally, for a
wide variety of historical and/or ideological reasons foreign ownership
restrictions have at some time been imposed over most stock exchanges in the
region. The discussion below highlights those Asian Countries where foreign
investment remains restricted.
A-8
<PAGE>
DEVELOPMENT OF ASIAN STOCK MARKETS
1984--1993
<TABLE>
<CAPTION>
MARKET CAP
ANNUAL TRADING NUMBER OF DEC. 31,
VALUE LISTED U.S.$
U.S.$ MILLIONS COMPANIES BILLIONS
------------------ --------------- -------------
EXCHANGE LOCAL INDEX 1984 1993 1984 1993 1984 1993
- - ------------------------------ ------------------ ------- ------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
China......................... N/A 43,395 N/A 183 N/A 40
Hong Kong..................... Hang Seng 6,243 131,550 N/A 450 23 385
India......................... SE Bombay Index 3,916 21,879 3,882 6,800 6 98
Indonesia..................... JSE Composite 2 9,158 24 174 0.1 33
Japan......................... Topix 286,182 954,391 1,802 2,155 667 3,000
Korea......................... KOSPI 3,869 211,710 336 693 139
Malaysia...................... KLSE Composite 2,226 153,661 217 410 19 220
Philippines................... ManilaCom/IndIndex 125 6,785 149 180 8 40
Singapore..................... DDS 50 3,849 81,623 121 178 12 133
Taiwan........................ TSE 8,194 346,487 123 285 10 195
Thailand...................... SET 434 86,934 96 347 2 130
</TABLE>
- - ------------
Sources: Emerging Stock Markets Factbook 1994; International Finance Corp.
Up until 1987, investment in Indonesia was effectively closed to foreigners;
Korea has opened up 15% of equity ownership to foreigners by 1995; Taiwan offers
limited access to foreign investors; and India has authorized direct access for
approved international institutional investors in 1995. Many companies in China,
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand have
foreign investment restrictions which can result in foreign owned stock trading
at a substantial premium or discount to locally-owned shares. Average daily
volume can be much lower in these markets than a typical day's trading volume in
the United States, particularly in the small and medium capitalization sectors
of the less well developed stock markets. In some of these markets, for example,
Hong Kong, Taiwan and Thailand, retail trading is comparatively more active and
institutional investment accounts for a lower proportion of total trading. A
large volume of retail trading can result in more volatile stock markets,
although some markets have daily price fluctuation limits.
Foreign investment restrictions may in the future be subject to change. For
example, the Council of Ministers in Thailand has approved the establishment of
mutual fund management companies, to be called "Thai Trust Funds," managed by
the Stock Exchange of Thailand. Thai Trust Funds, expected to be implemented by
the end of 1996, would permit unlimited foreign shareholding of Thai securities,
subject to restrictions on voting. In addition, it is expected that Korea will
increase the percentage of stock of a Korean issuer that may be owned by
foreigners. Such changes could have the effect of reducing or eliminating the
premium at which many foreign owned stocks presently trade. This could have an
adverse affect on the Fund if it had previously purchased such stocks at a
premium.
Since the mid 1980s, however, stock market development throughout the
region, both with respect to daily trading volume and the number of securities
traded, has gained momentum. In terms of market capitalization, after Japan,
Hong Kong is the largest stock market in Asia, capitalized at US$385 billion as
of December 1993, followed by Malaysia at US$220 billion. Over the period from
1984 to 1993, Indonesia has seen a 625% expansion in the number of listed
companies, coupled with an increase in market capitalization from $85 million to
$33 billion. The number of listed companies in Korea,
A-9
<PAGE>
Taiwan and Thailand increased 106%, 132% and 261%, respectively, over the same
period, while annual stock exchange turnover in these markets rose dramatically.
ASIAN STOCK MARKET RETURNS
<TABLE>
<CAPTION>
STOCK
AVERAGE ANNUAL MARKET RETURNS
STOCK MARKET RETURN (LOCAL CURRENCY %)
(LOCAL CURRENCY %) 1 MONTH TO END
1990-1995 JANUARY 1996
------------------- ------------------
<S> <C> <C>
China......................................... N/A N/A
Hong Kong..................................... 25.3 12.9
India......................................... 25.4(a) (6.3)
Indonesia..................................... 0.2 13.4
Japan......................................... (0.7) 2.3
Korea......................................... 6.2 (1.2)
Malaysia...................................... 13.9 4.5
Philippines................................... 33.9 9.9
Singapore..................................... 13.8 5.7
Taiwan........................................ 5.3 (6.6)
Thailand...................................... 20.7 9.8
United States................................. 11.6 3.5
</TABLE>
- - ------------
Source: MSCI Price Indices.
(a) Source: F.E. Bombay Index, Emerging Stock Markets Factbook
With the exception of Japan, the Asian stock markets have seen positive
returns over the past five calendar years, although such returns cannot be
assured in the future. These markets in general do not move together. For
example, during the period 1990 to 1995, the best performing market was the
Philippines and the worst was Japan, while for the first two months of 1996 the
best performing market was Indonesia and the worst was Taiwan. The stock markets
in most of the Asian Countries are at high levels which may not persist.
Accordingly, to the extent that the Fund purchases securities at present levels
in these and other high performing Asian stock markets, there may be a greater
risk that the value of such securities may decline.
CURRENCY EXCHANGE RATES
(FOREIGN CURRENCY PER U.S. DOLLAR)
END OF PERIOD
<TABLE>
<CAPTION>
CHINA HONG KONG INDIA INDONESIA JAPAN KOREA MALAYSIA PAKISTAN PHILIPPINES SINGAPORE SRI LANKA
RMB HK$ RS RUPIAH Y W RM PRS P S$ SLRS
------ --------- ------ --------- ----- ----- -------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985..... 3.2015 7.811 12.166 1125 200.5 890.2 2.4265 15.98 19.032 2.1050 27.408
1986..... 3.7221 7.790 13.122 1641 159.1 861.4 2.6030 17.25 20.530 2.1750 28.520
1987..... 3.7221 7.760 12.877 1650 123.5 792.3 2.4928 17.45 20.800 1.9985 30.763
1988..... 3.7221 7.806 14.949 1731 125.9 684.1 2.7153 18.65 21.335 1.9462 33.033
1989..... 4.7221 7.807 17.035 1797 143.5 679.6 2.7033 21.42 22.440 1.8944 40.000
1990..... 5.2221 7.801 18.073 1901 134.4 716.4 2.7015 21.90 28.000 1.7445 40.240
1991..... 5.4342 7.781 25.834 1992 125.2 760.8 2.7240 24.72 26.650 1.6305 42.580
1992..... 5.7518 7.741 26.200 2062 124.8 788.4 2.6120 25.70 25.096 1.6449 46.000
1993..... 5.8000 7.726 31.380 2100 111.9 808.1 2.7015 30.120 27.699 1.6080 49.562
1994..... 8.4462 7.737 31.380 2200 98.7 788.7 2.5600 38.800 24.418 1.4607 49.980
1995..... 8.3179 7.7333 35.055 2289 102.9 775.72 2.6413 34.216 26.235 1.4148 53.498
<CAPTION>
TAIWAN THAILAND
NT$ B
------ --------
<S> <C> <C>
1985..... 39.850 26.65
1986..... 35.500 26.13
1987..... 28.550 25.07
1988..... 28.170 25.24
1989..... 26.160 25.69
1990..... 27.108 25.29
1991..... 25.748 25.28
1992..... 25.403 25.52
1993..... 26.626 28.54
1994..... 26.240 25.09
1995..... 27.286 25.19
</TABLE>
Sources: International Monetary Fund, International Financial Statistics,
November 1995; The Wall Street Journal, December 30, 1995.
A-10
<PAGE>
- - -------------------------------------------
- - -------------------------------------------
- - -------------------------------------------
- - -------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND,
THE INVESTMENT ADVISER OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED ACCORDINGLY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES
OFFERED BY THE PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR AN OFFER
TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Information.................... 3
Financial Highlights................... 4
The Offer.............................. 5
The Fund............................... 14
Use of Proceeds........................ 15
Market and Net Asset Value
Information............................ 15
Investment Objective and Policies...... 16
Additional Investment Practices........ 19
Investment in Asia..................... 21
Risk Factors and Special
Considerations......................... 23
Management of the Fund................. 31
Investment Advisory and Other
Services............................... 31
Dividends and Distributions; Dividend
Reinvestment Plan...................... 34
Taxation............................... 35
Common Stock........................... 37
Annual Tender Offers and Repurchases of
Shares................................. 39
Distribution Arrangements.............. 41
Custodian, Transfer Agent, Dividend
Paying Agent and Registrar........... 41
Experts................................ 42
Validity of the Shares................. 42
Additional Information................. 42
Table of Contents of Statement of
Additional Information............... 43
Asian Economies and Stock Markets...... A-1
</TABLE>
SCHRODER ASIAN GROWTH FUND, INC.
<PAGE>
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
[LOGO]
---------------
PROSPECTUS
---------------
PAINEWEBBER INCORPORATED
, 1996
- - -------------------------------------------
- - -------------------------------------------
- - -------------------------------------------
- - -------------------------------------------
2
<PAGE>
SCHRODER ASIAN GROWTH FUND, INC.
-------------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus, dated , 1996 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of the Fund and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's Information
Agent, at (800) or collect at . This SAI
incorporates by reference the entire Prospectus. Capitalized terms used herein
without other definition shall have the same meaning as provided in the
Prospectus. The date of this SAI is , 1996.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions............................................................... 2
Certain Investment Practices..........................................................
Management of the Fund................................................................
Net Asset Value.......................................................................
Taxation..............................................................................
Portfolio Transactions and Brokerage..................................................
Financial Statements.................................................................. F-1
Report of Independent Accountants..................................................... F-
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of Schroder Asian Growth
Fund, Inc. (the "Fund") that may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the Prospectus). Other than for purposes of the restriction contained in
paragraph (2) below, if a percentage restriction on investment or use of assets
set forth below is adhered to at the time a transaction is effected, later
changes will not be considered a violation of the restriction. Also, if the Fund
receives from an issuer of securities held by the Fund subscription rights to
purchase securities of that issuer, and if the Fund exercises such subscription
rights at a time when the Fund's portfolio holdings of securities of that issuer
would otherwise exceed the limits set forth in paragraph (1) below, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights. As a matter of fundamental policy, the Fund may not:
(1) purchase any securities which would cause 25% or more of the value
of its total assets, taken at market value at the time of such purchase, to
be invested in securities of one or more issuers conducting their principal
business activities in the same industry, provided that there is no
limitation with respect to investment in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. For purposes of this
restriction, a foreign government is deemed to be an "industry";
(2) issue senior securities or borrow money, except that the Fund may
borrow (a) up to 5% of its total assets (including the amount borrowed) for
temporary or emergency purposes (including for clearance of transactions or
payment of dividends) and (b) up to 33 1/3% of its total assets (including
the amount borrowed) in connection with the repurchase of Shares or tender
offers; provided, however, that the Fund's obligations under when-issued and
delayed delivery transactions and similar transactions are not treated as
senior securities if covering assets are appropriately segregated, and the
use of Hedging shall not be deemed to involve the issuance of a "senior
security" or a "borrowing." The Fund's obligations under interest rate,
currency and equity swaps are not treated as senior securities if covering
assets are appropriately segregated;
(3) purchase or sell commodities or commodity contracts, including
futures contracts and options thereon, except that the Fund may engage in
Hedging as described in the Prospectus and this SAI;
(4) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, bankers' acceptances and fixed time deposits) in
accordance with its investment objective and policies, (b) enter into
repurchase agreements with respect to portfolio securities, and (c) make
loans of portfolio securities, as described under "Additional Investment
Practices--Loans of Portfolio Securities" in the Prospectus;
(5) underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter;
2
<PAGE>
(6) purchase real estate, real estate mortgage loans or real estate
limited partnership interests (other than securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein);
(7) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions and for Hedging purposes and margin deposits in
connection with transactions in futures contracts, options on futures
contracts, options on securities and securities indices, and currency
transactions);
(8) make short sales of securities or maintain a short position; or
(9) invest for the purpose of exercising control over management of any
company.
CERTAIN INVESTMENT PRACTICES
A detailed discussion of the Hedging (as defined below) that may be done by
the Investment Manager on behalf of the Fund follows below. The Fund will not be
obligated, however, to do any Hedging and makes no representation as to the
availability of these techniques at this time or at any time in the future.
"Hedging," as used in this SAI, refers to entering into interest rate, currency
or stock index futures contracts, currency forward contracts and currency swaps,
the purchase and sale (or writing) of exchange listed and over-the-counter
("OTC") put and call options on debt and equity securities, currencies, interest
rate, currency or stock index futures and fixed income and stock indices and
other financial instruments, entering into various interest rate transactions
such as swaps, caps, floors, collars, entering into equity swaps, caps, floors
or trading in other types of derivatives.
The Fund's ability to pursue certain of these strategies may be limited by
the U.S. Commodity Exchange Act, as amended, applicable regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the Federal income
tax requirements applicable to regulated investment companies.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Fund may purchase and sell put and call options on debt and equity
securities and indices based upon the prices of debt or equity securities. A put
option on a security gives the purchaser of the option the right to sell and the
writer the obligation to buy the underlying security at the exercise price
during the option period. The Fund may also purchase and sell options on indices
based upon the prices of debt or equity securities ("index options"). Index
options are similar to options on securities except that, rather than taking or
making delivery of securities underlying the option at a specified price upon
exercise, an index option gives the holder the right to receive cash upon
exercise of the option if the level of the index upon which the option is based
is greater, in the case of a call, or less in the case of a put, than the
exercise price of the option. The purchase of a put option on a security would
be designed to protect against a substantial decline in the market value of a
security held by the Fund. A call option on a security gives the purchaser of
the option the right to buy and the writer the obligation to sell the underlying
security at the exercise price during the option period. The purchase of a call
option on a security would be intended to protect the Fund against an increase
in the price of a security that it intended to purchase in the future. In the
case of either put or call options that it has purchased, if the option expires
without being sold or exercised, the Fund will experience a loss in the amount
of the
3
<PAGE>
option premium plus any related commissions. When the Fund sells put and call
options, it receives a premium as the seller of the option. The premium that the
Fund receives for writing the option will serve as a partial hedge, in the
amount of the option premium, against changes in the value of the securities in
its portfolio. During the term of the option, however, a covered call seller
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price of the option if the value of the
underlying security increases, but has retained the risk of loss should the
price of the underlying security decline. Conversely, a secured put seller
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option, less the premium received on the
sale of the option. The Fund is authorized to purchase and sell exchange listed
options and over-the-counter options ("OTC Options") which are privately
negotiated with the counterparty to such contract. Listed options are issued by
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options.
All such call options sold (written) by the Fund will be "covered" as long
as the call is outstanding (i.e., the Fund will own the instrument subject to
the call or other securities or assets acceptable under applicable segregation
and coverage rules). All such put options sold (written) by the Fund will be
secured by segregated assets consisting of cash or liquid high grade debt
securities having a value not less than the exercise price.
The Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent upon the existence of a liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC as
a result of trades on that exchange would generally continue to be exercisable
in accordance with their terms. OTC Options are purchased from or sold to
dealers, financial institutions or other counterparties which have entered into
direct agreements with the Fund. With OTC Options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
counterparty, without the intermediation of a third party such as the OCC. If
the counterparty fails to make or take delivery of the securities underlying an
option it has written, or otherwise settle the transaction in accordance with
the terms of that option as written, the Fund would lose the premium paid for
the option as well as any anticipated benefit of the transaction. As the Fund
must rely on the credit quality of the counterparty rather than the guarantee of
the OCC, it will only enter into OTC options with counterparties with the
highest long-term credit ratings, and with primary United States government
securities dealers recognized by the Federal Reserve Bank of New York.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
4
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Fund may purchase and sell futures contracts on
interest rates and indices of debt and equity securities and purchase and sell
(write) put and call options on such futures contracts traded on recognized
domestic exchanges as a hedge against anticipated interest rate changes or
movements in equity markets. The sale of a futures contract creates an
obligation by the Fund, as seller, to deliver the specific type of financial
instrument called for in the contract at a specified future time for a specified
price. Options on futures contracts are similar to options on securities except
that an option on a futures contract gives the purchaser the right in return for
the premium paid to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that the Fund will pay may
range from approximately 1% to approximately 5% of the value of the instruments
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased in the future pursuant to regulatory action. An
outstanding futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "marking to the market."
Transactions in listed options and futures are usually settled by entering into
an offsetting transaction, and are subject to the risk that the position may not
be able to be closed if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures
Contracts. The Fund's use of futures contracts and options on futures contracts
will in all cases be consistent with applicable regulatory requirements and in
particular, the rules and regulations of the CFTC.
The Fund will not engage in transactions in futures contracts or options
thereon for speculative purposes but only as a hedge against changes resulting
from market conditions in the values of securities in its portfolio; provided,
however, that the Fund may enter into futures contracts or options thereon for
purposes other than bona fide hedging if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open contracts and options would
not exceed 5% of the liquidation value of the Fund's portfolio; provided,
further, that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to the
market value of the contract. The Investment Adviser reserves the right to
comply with such different standards as may be established from time to time by
CFTC rules and regulations with respect to the purchase and sale of futures
contracts and options thereon.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with counterparties to hedge
the value of portfolio securities denominated in particular currencies against
fluctuations in relative value. Currency transactions include currency forward
contracts, exchange listed currency futures contracts, exchange listed and OTC
options on currencies and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash
5
<PAGE>
flows based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. The Fund may enter
into currency transactions with counterparties that have received (or the
guarantors of the obligations of that have received) a credit rating of P-1 or
A-1 by Moody's or S&P, respectively, or that have an equivalent rating from an
NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Investment Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is entering into a currency transaction
with respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of the Fund's portfolio securities
or the receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency. The Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held in the Fund's portfolio that are denominated or generally quoted in or
currently convertible into the currency, other than with respect to proxy
hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure. To reduce the effect of currency fluctuations on the
value of existing or anticipated holdings of portfolio securities, the Fund may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge against
the dollar. Proxy hedging entails entering into a forward contract to sell a
currency, the changes in the value of which are generally considered to be
linked to a currency or currencies in which some or all of the Fund's portfolio
securities are or are expected to be denominated, and to buy dollars. The amount
of the contract would not exceed the value of the Fund's securities denominated
in linked currencies. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, the risk exists that the perceived linkage between various currencies
may not be present or may not be present during the particular time that the
Fund is engaging in proxy hedging. If the Fund enters into a currency hedging
transaction, the Fund will comply with the asset segregation requirements
described below.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transactions costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on these options is
6
<PAGE>
subject to the maintenance of a liquid market that may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.
INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund would enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to manage the duration of its portfolio or to protect against
any increase in the price of the securities the Fund anticipates purchasing at a
later date. The Fund will not sell interest rate caps or floors that it does not
own.
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments on the
payment date. The Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of the
other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into such
transaction. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
EQUITY SWAPS AND RELATED TRANSACTIONS
The Fund may enter into equity swaps and may purchase or sell equity caps
and floors. The Fund would enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, or to
protect against any increase in the price of the securities the Fund anticipates
purchasing at a later date. The Fund will not sell equity caps or floors that it
does not own. The Fund may enter into equity swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into equity swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments on the payment date.
The Fund will not enter into any equity swap, cap or floor transaction unless
the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into such transaction. If
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. Caps and floors are more recent innovations for
which standardized documentation has not yet been developed and, accordingly,
they are less liquid than swaps.
RISKS OF HEDGING
Hedging involves special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the Investment
Adviser's view as to certain market movements is incorrect,
7
<PAGE>
the risk that the use of Hedging could result in losses greater than if such
investment strategies had not been used. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at an inopportune time or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions could result in the Fund's incurring losses as a result of the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain special risks. In particular, the variable degree
of correlation between price movements of futures contracts and price movements
in the related portfolio position of the Fund could create the possibility that
losses on the hedging instrument are greater than gains in the value of the
Fund's position. In addition, futures and options markets could be illiquid in
some circumstances and certain over-the-counter options could have no markets.
As a result, in certain markets, the Fund might not be able to close out a
position without incurring substantial losses. Although the Fund's use of
futures and options transactions for hedging purposes should tend to minimize
the risk of loss due to a decline in the value of the hedged position at the
same time it will tend to limit any potential gain to the Fund that might result
from an increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is united to
the cost of the initial premium and transaction costs. Losses resulting from
Hedging will reduce the Fund's net asset value, and possibly income, and the
losses can be greater than if the Hedging had not been used.
When conducted outside the United States, Hedging may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of positions taken as part of non-U.S. Hedging also could
be adversely affected by: (1) other complex foreign political, legal and
economic factors; (2) lesser availability of data on which to make trading
decisions than in the United States; (3) delays in the Fund's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States; (4) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States; and (5) lower
trading volume and liquidity.
SEGREGATION AND COVER REQUIREMENTS
Much of the Hedging which may be entered into by the Fund is subject to
segregation and coverage requirements established by either the CFTC or the SEC,
with the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an ongoing
basis with its custodian, cash, U.S. government securities, or other liquid high
grade debt obligations in an amount at least equal to the Fund's obligations
with respect to such instruments. Such amounts will fluctuate as the market
value of the obligations increases or decreases. The segregation requirement can
result in the Fund maintaining positions it would otherwise liquidate and
consequently segregating assets with respect thereto at a time when it might be
disadvantageous to do so. In addition, with respect to futures contracts
purchased by the Fund, the Fund will also be subject to the segregation
requirements with respect to the value of the instruments underlying the futures
contract.
OTHER LIMITATIONS
The degree of the Fund's use of Hedging may be limited by certain provisions
of the Code. See "Taxation--United States Federal Income Taxes--Foreign
Exchange-Related Transactions; Hedging Transactions" below in this SAI.
8
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The names and addresses of the individuals who serve as directors and
officers of the Fund are set forth below, together with their positions and
their principal occupations during the past five years and, in the case of the
directors, their positions with certain other organizations and publicly-held
companies. The Board of Directors is divided into three classes, each director
serving for a term of three years.
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS POSITIONS HELD WITH PRINCIPAL OCCUPATIONS
AND CLASS THE FUND DURING PAST FIVE YEARS
- - ---------------------- ---------------------- --------------------------------------------
<S> <C> <C>
Peter E. Guernsey, 74 Director Since 1982, Director, Schroder Capital
45 East 72nd Street Funds, Inc. (mutual fund); since 1986,
Apartment 10A insurance consultant; prior thereto, Senior
New York, NY 10021 Vice President, Marsh & McLennan, Inc.
+, I (insurance brokers).
John I. Howell, 79 Director Since 1988, Director, Schroder Capital
47 Mayfair Lane Funds, Inc. (mutual fund); Director,
Greenwich, CT 06831 American I n ternational Group; Director,
+, II American International Life Assurance
Company of New York; private consultant
since 1987.
Laura E. Luckyn- President and Director President of the Fund; Senior Vice President
Malone*, 43 and Managing Director, Schroder Capital
III, (1), (2) Management International Inc. and Schroder
Capital Management International Ltd.
(investment advisers); President, Schroder
Capital Funds (Delaware); President, WSIS
Series Trust, Inc.; President, Director and
Chairman, Schroder Fund Advisors Inc.
(broker-dealer).
William L. Means, 59 Director 1983-1994, Chief Investment Officer, Alaska
P.O. Box 20277 Permanent Fund Corporation; 1973-1983,
Juneau, AK 99802 Investment Officer, State of Alaska,
+, III Department of Revenue, Treasury Division;
1960-1973, Security Pacific National Bank.
David M. Salisbury*, Vice Chairman and Vice Chairman of the Fund; Chief Executive
44 Director and Director, Schroder Capital Management
II, (1), (3) International Inc. and Schroder Capital
Management International Ltd.; Director and
Joint Chief Executive, Schroder Investment
Management Ltd. (investment adviser);
Director, Dimensional Fund Advisers Inc.
(investment adviser) and DFA Securities Inc.
(broker-dealer); 1989-1992, Chairman and
Director, Schroder Capital Distributors
Inc.; 1984-1991, Director, Schroder Capital
Funds, Inc.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS POSITIONS HELD WITH PRINCIPAL OCCUPATIONS
AND CLASS THE FUND DURING PAST FIVE YEARS
- - ---------------------- ---------------------- --------------------------------------------
<S> <C> <C>
I. Peter Sedgwick*, 60 Chairman and Director Chairman of the Fund; since 1995, Vice
I, (1), (3) Chairman, Schroders plc; Chairman and
Director, Schroder Capital Management
International Inc. and Schroder Capital
Management International Ltd.; Director,
Schroder Investment Management Ltd. (Chief
Executive 1985-1994); Director, The
Equitable Life Assurance Society, Wertheim
Schroder & Co. Inc. (broker-dealer), Church,
Charity & Local Authority Fund Managers,
Schroder Personal Financial Management
Limited (investment advisers); Director,
various offshore investment funds for which
an affiliate of Schroders plc serves as
investment manager.
Madelon DeVoe Talley, Director Since 1986, Vice Chairman, W.P. Carey & Co.
64 (asset manager); since 1987, Board Member
876 Park Avenue and Trustee, Smith Barney, Shearson Equity
New York, NY 10028 Funds, Income Funds, Trak Fund and Advisor
+, III Fund (mutual funds); since 1990, Director,
Global Asset Management Funds, Inc. (mutual
fund); since 1993, Director, Alliance
Capital Management L.P. (investment
adviser); Director, Biocraft Laboratories
(generic drugs), marketing consultant, Three
Cities Research (venture capital); since
1994, Director, Laidlaw Covenant Fund
(mutual fund); 1988-1993, Trustee, New York
State Teachers Retirement System.
Heather F. Crighton Vice President Since 1993, Vice President, Schroder Capital
(3) Management International Inc. and Schroder
Capital Management International Ltd.; 1989-
1993, Portfolio Manager, Mercantile and
General Reinsurance Co.
Margaret H. Secretary Secretary, First Vice President and General
Douglas-Hamilton, 54 Counsel, Schroders Incorporated; Secretary,
(2) Schroder Capital Management International
Inc., Schroder Capital Distributors Inc.,
Schroder Capital Funds, Inc., Schroder
Structured Investments Inc., Schroder
Venture Managers Inc; prior thereto, partner
of Sullivan & Worcester, a law firm.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS POSITIONS HELD WITH PRINCIPAL OCCUPATIONS
AND CLASS THE FUND DURING PAST FIVE YEARS
- - ---------------------- ---------------------- --------------------------------------------
<S> <C> <C>
Robert Jackowitz, Treasurer Comptroller, Schroder Capital Management
(2) International Inc.; Vice President and
Treasurer, Schroder Venture Managers Inc.;
Treasurer, Schroders Incorporated, Schroder
Capital Funds, Inc.; Treasurer and Director,
Schroder Capital Distributors Inc.
(President 1992-1994)
Mark J. Smith, 34 Vice President First Vice President and Director, Schroder
(3) Capital Management International Inc. and
Schroder Capital Management International
Ltd.; Vice President and Director, Schroder
Capital Distributors Inc. and Schroder
Capital Funds (Delaware)
</TABLE>
- - ------------
* "Interested person," as defined by Section 2(a)(19) of the Investment Company
Act of 1940, of the Fund.
+ Member of the Audit Committee and the Nominating Committee of the Board of
Directors.
I Class I director, elected to serve until 1996 annual meeting of stockholders.
II Class II director, elected to serve until 1997 annual meeting of
stockholders.
III Class III director, elected to serve until 1998 annual meeting of
stockholders.
(1) Director, officer, employee or stockholder of Schroder Capital Management
International Inc.
(2) Address: Schroder Capital Management International Inc., 787 Seventh Avenue,
New York, New York 10019
(3) Address: Schroder Capital Management International Inc., 33 Gutter Lane,
London, England EC2V 8AS
At the Record Date, the directors and officers of the Fund as a group owned
an aggregate of shares, less than 1% of the outstanding shares of
Common Stock of the Fund.
Compensation of Directors. Schroder Capital Management International Inc.,
the Investment Adviser to the Fund, pays all compensation of each director of
the Fund who is affiliated with the Investment Adviser or any of its affiliates,
including the Fund, except that the Fund bears the out-of-pocket expenses of
such directors to the extent that such expenses relate to attendance at meetings
of the Board of Directors of the Fund or any committees thereof. The Fund pays
each director not affiliated with the Investment Adviser an annual fee of $7,500
plus $500 per meeting attended, together with such director's actual
out-of-pocket expenses relating to attendance at meetings. Such fees and
expenses aggregated $ for the fiscal year ended October 31, 1995.
The following table sets forth, for the periods indicated, the compensation
paid by the Fund to its directors and certain officers and the aggregate
compensation paid by all investment companies managed or advised by the
Investment Adviser to the directors and such officers:
11
<PAGE>
COMPENSATION TABLE
FISCAL YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS TOTAL COMPENSATION
COMPENSATION ACCRUED AS PART OF FROM FUND COMPLEX*
FROM THE FUND FOR FUND EXPENSES FOR PAID TO DIRECTORS DURING
ITS FISCAL YEAR ITS FISCAL YEAR THE CALENDAR YEAR
NAME ENDED 10/31/95 ENDED 10/31/95 ENDED 12/31/95
- - -------------------------------------- ----------------- ------------------ ------------------------
<S> <C> <C> <C>
Richard M. Furber1.................... $ None $
Peter E. Guernsey..................... $ None $
John I. Howell........................ $ None $
Laura E. Luckyn-Malone................ None None None
William L. Means1..................... $ None $
David M. Salisbury.................... None None None
I. Peter Sedgwick..................... None None None
Madelon DeVoe Talley.................. $ None $
</TABLE>
- - ------------
* In addition to the Fund, the "Fund Complex" includes Schroder Capital Funds,
Inc., and its three series funds, which are the International Equity Fund, the
Schroder U.S. Equity Fund, and the Schroder U.S. Smaller Companies Fund.
1. Mr. Furber resigned from the Board of Directors effective January 31, 1995;
Mr. Means was elected to the Board of Directors on February 10, 1995.
No current or former employees, officers or directors received remuneration
in excess of $60,000 in the last fiscal year for service in all their respective
capacities.
Although the Fund is a Maryland corporation, certain of its directors and
officers are non-residents of the United States and have all, or a substantial
part, of their assets located outside of the United States. As a result, it may
be difficult for U.S. investors to effect service of process upon such directors
or officers within the United States or effectively to enforce judgments of
courts of the Untied States predicated upon civil liabilities of such directors
or officers under the Federal securities laws of the United States. In addition,
such civil remedies as are afforded by the Federal securities laws of the United
States may not be enforceable in England, the residence of the non-U.S. resident
directors and officers of the Fund.
The By-Laws of the Fund provide that the Fund will indemnify any present or
former directors or officers of the Fund, or persons serving as director or
officer of at the request of the Fund, who is made a party to any proceeding by
reason of their service in that capacity. With the approval of the Board of
Directors, the Fund may indemnify any employee or agent of the Fund. However,
nothing in the Articles of Incorporation or the By-Laws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
To the best of the Fund's knowledge, as of , 1996 no person owned
beneficially more than 5% of the Fund's outstanding shares.
12
<PAGE>
ADDITIONAL INFORMATION REGARDING ANNUAL TENDER OFFERS AND REPURCHASES OF SHARES
See "Annual Tender Offers and Repurchases of Shares" in the Prospectus for
information on that topic that is supplemented by the information below.
Although the Board of Directors has committed to annual tender offers under
the circumstances set forth in the Prospectus, it is the directors' announced
policy, which may be changed by the directors, that the Fund cannot accept
tenders or effect repurchases if (1) such transactions, if consummated, would
(a) result in the delisting of the Fund's shares from the NYSE (the NYSE having
advised the Fund that it would consider delisting if the aggregate market value
of the Fund's outstanding shares is less than $5,000,000, the number of publicly
held shares falls below 600,000 or the number of round-lot holders falls below
1,200) or (b) impair the Fund's status as a regulated investment company under
the Code (which would make the Fund subject to U.S. Federal income taxes on all
of its income and gains in addition to the taxation of shareholders who receive
distributions from the Fund); (2) the amount of Shares tendered would require
liquidation of such a substantial portion of the Fund's securities that the Fund
would not be able to liquidate portfolio securities in an orderly manner in
light of the existing market conditions and such liquidation would have an
adverse effect on the net asset value of the Fund to the detriment of
non-tendering shareholders; (3) there is any (a) in the Board of Directors'
judgment, material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting the
Fund, (b) suspension of or limitation on prices for trading securities generally
on the NYSE or other national securities exchange(s), or the NASDAQ National
Market System, (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by banks in the United States or New
York State, (d) limitation affecting the Fund or the issuers of its portfolio
securities imposed by Federal or state authorities on the extension of credit by
lending institutions, (e) commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States, or (f) in the Board of Directors' judgment, other event or condition
which would have a material adverse effect on the Fund or its shareholders if
Shares were repurchased; or (4) the Board of Directors determines that effecting
any such transaction would constitute a breach of the directors' fiduciary duty
owed to the Fund or its shareholders. The directors may modify these conditions
in light of experience.
A shareholder who sells all of his shares (including shares attributed to
him for U.S. Federal income tax purposes under Section 318 of the Code) pursuant
to a tender offer or open-market repurchase by the Fund will realize a taxable
gain or loss, treated as described in "Taxation -- U.S. Federal Income Taxes" in
the Prospectus. A shareholder who sells less than all of his Shares (including
shares so attributed) may be treated as receiving a dividend from the Fund in
the amount of some or all of the proceeds of sale; in that event, the amount of
proceeds not treated as a dividend would be a return of capital, reducing the
shareholder's basis in his shares (including the shares sold pursuant to the
tender offer or repurchase) and a gain (treated as a capital gain for a
shareholder owning the shares as a capital asset) to the extent of any amount in
excess of such basis. Also, in the case of open-market repurchases, it is
possible that shareholders who do not have their shares repurchased would be
treated as having received a dividend distribution as a result of their
proportionate increase in the ownership of the Fund.
The Fund will not specify a record date for the tender offer which will not
permit a shareholder of record on the effective date of the tender offer to
tender its shares. The Fund will purchase all shares tendered in accordance with
the terms of the offer unless it determines to accept none of them (based
13
<PAGE>
upon one of the conditions set forth above). Each person tendering shares will
pay to the Fund a reasonable service charge, currently anticipated to be $25.00,
but subject to change, to help defray certain costs, including the processing of
tender forms, effecting payment, postage and handling. It is the position of the
staff of the Commission that such service charge may not be deducted from the
proceeds of the purchase. The Fund's transfer agent will receive the fee as an
offset to these costs. The Fund expects that the cost to the Fund of effecting a
tender offer will exceed the aggregate of all service charges received from
those who tender their shares. Such excess costs associated with the tender will
be charged against capital. Tendered shares that have been accepted and
purchased by the Fund will be recorded and reported as an offset to
shareholders' equity and accordingly will reduce the Fund's total assets.
If the Fund must liquidate portfolio securities in order to purchase Shares
tendered, the Fund may realize gains and losses. Such gains may be realized on
securities held for less than three months. Because the Fund, as a regulated
investment company under the Code, may not derive 30% or more of its gross
income from the sale or disposition of stocks and securities held less than
three months, such gains would reduce the ability of the Fund to sell other
securities held for less than three months that the Fund may wish to sell in the
ordinary course of its portfolio management, which may adversely affect the
Fund's yield. See "Taxation--U.S. Federal Income Taxes" in the Prospectus. The
portfolio turnover rate of the Fund may or may not be affected by the Fund's
repurchases of Shares pursuant to a tender offer.
14
<PAGE>
THE INVESTMENT ADVISER
Certain information regarding the directors and principal executive officer
of the Investment Adviser (also referred to as "SCMI") is set forth below:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- - ------------------------------ ------------------------------------------------------------
<S> <C>
John S. Ager (1) Senior Vice President and Director, SCMI
Robert G. Davy (1) First Vice President and Director, SCMI
Richard R. Foulkes (1) Executive Vice President and Director, SCMI
David Gibson (2) Senior Vice President and Director, SCMI
C. John Govett (1) Director, SCMI; Chairman, Schroder Investment Management
Limited
Sharon L. Haugh (2) Senior Vice President and Director, SCMI
Laura E. Luckyn-Malone (2) Senior Vice President and Director, SCMI; President and
Director of the Fund
Gavin D.L. Ralston (1) Senior Vice President and Director, SCMI
David M. Salisbury (1) Chief Executive and Director, SCMI and Schroder Capital
Management International Ltd.; Vice Chairman and Director
of the Fund
I. Peter Sedgwick (1) Vice Chairman, Schroders plc; Chairman and Director, SCMI
and Schroder Capital Management International Ltd.;
Chairman and Director of the Fund
Mark J. Smith (1) First Vice President and Director, SCMI; Vice President of
the Fund
John A. Troiano (1) Senior Vice President and Director, SCMI
</TABLE>
- - ------------
* Principal executive officer.
(1) Address: Schroder Capital Management International Inc., 33 Gutter Lane,
London, England EC2V 8AS
(2) Address: Schroder Capital Management International Inc., 787 Seventh Avenue,
New York, New York 10019
The Investment Adviser is a New York corporation. Schroders Incorporated
owns 100% of the voting securities of the Investment Adviser. Schroder
International Holdings Limited owns 100% of the voting securities of Schroders
Incorporated. Schroders Public Limited Company ("Schroders plc") owns 100% of
the voting securities of Schroder International Holdings Limited. The voting
securities of Schroders plc are publicly traded on the London Stock Exchange.
Certain of such voting securities are held by the following persons (the
"Trustees"): 20.5% by Vincitas Limited, 13.2% by Veritas Limited, and 5.9% by
One Forty-Five Limited. To the knowledge of the Fund, no other person holds 5%
or more of the voting securities of Schroders plc. The Trustees hold interests
as trustees of certain discretionary trusts created by members of the Schroder
family. None of the persons for whom such voting securities are held in trust
has an absolute interest in any of such securities, since such securities are
held in fully discretionary trusts. No individual or organization beneficially
owns a 5% or greater interest in any of such trusts, nor does any person or
entity other than the Trustees themselves possess direct or indirect 5% control
over any of the Trustees.
15
<PAGE>
The address of the Investment Adviser and Schroders Incorporated is 787
Seventh Avenue, New York, New York 10019. The address of each of Schroder
International Holdings Limited and Schroders plc is 120 Cheapside, London,
England EC2V 6DS. The address of Vincitas Limited, Veritas Limited and One
Forty-Five Limited is 22 Church Street, Hamilton, Bermuda HM 11.
The Investment Advisory Agreement between the Investment Adviser and the
Fund provides that the Investment Adviser will make investment decisions for the
Fund and select the brokers and dealers for execution of the Fund's portfolio
transactions consistent with the Fund's brokerage policies. See "Portfolio
Transactions and Brokerage" below in this SAI. The Investment Adviser or its
affiliates may receive services from broker-dealers consistent with the Fund's
brokerage policies which, in some cases, may be of value or benefit to the
Investment Adviser or its advisory clients, including the Fund. The value of
such services is indeterminable and such services are not necessarily useful or
of value in advising the Fund. The investment advisory fee paid by the Fund is
not reduced through any offset by reason of the receipt by the Investment
Adviser or its affiliates of such services.
The Investment Advisory Agreement by its terms continues in effect for a
period of two years from the date thereof. If not sooner terminated, it will
continue in effect for successive periods of twelve months thereafter; provided
each continuance is specifically approved annually by a vote of a majority of
the members of the Board of Directors who are not interested persons of the
Investment Adviser or the Fund (the "Independent Directors"), cast in person at
a meeting called for the purpose of voting on such approval, and by a majority
vote either of the Fund's Board of Directors or of the Fund's outstanding voting
securities. The Investment Advisory Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act), and may be terminated
by either party at any time without payment of any penalty on 60 days' written
notice provided that termination by the Fund is approved by a majority of the
directors of the Fund in office at the time or by vote of a majority of the
Fund's outstanding voting securities.
Prior to the Fund's commencement of operations, the Investment Advisory
Agreement was approved on December 16, 1993 by the Investment Adviser as the
then-sole stockholder of the Fund, and by the Board of Directors and,
separately, by the Independent Directors, who determined that the compensation
to be provided to the Investment Adviser, as investment adviser to the Fund, was
fair and reasonable. The Board of Directors resolved to submit the Agreement to
the stockholders of the Fund for approval at the first annual meeting of
stockholders. Thereafter, on November 21, 1994, the Board of Directors and,
separately, the Independent Directors voted to continue and approve the
Agreement and concluded that the compensation to be provided to the Investment
Adviser thereunder is fair and reasonable. The Board of Directors voted to
approve submission of the Agreement to the stockholders of the Fund for approval
at the annual meeting of stockholders to be held on May 11, 1995, and to
recommend that the stockholders vote for the Agreement. At such meeting, the
shareholders of the Fund voted to approve the Advisory Agreement.
16
<PAGE>
NET ASSET VALUE
The net asset value of shares of the Fund is calculated no less frequently
than 12:00 noon, New York City time, on the second to last business day of each
week, by dividing the value of the Fund's securities plus any cash and other
assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of Shares outstanding,
the result being adjusted to the nearest whole cent. The Wall Street Journal,
The New York Times and Barron's publish net asset values for closed-end
investment companies each week. A security listed or traded on a recognized
stock exchange or National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market System is valued at its last sale price on the
principal exchange on which the security is traded. Other securities for which
market quotations are readily available are valued at the last sales price prior
to the time of determination, or, if there was no sales price on such date, and
if bid and asked quotations are available, at the mean between the last current
bid and asked prices. The value of a foreign security is determined in its
national currency as of 9:00 a.m., New York City time, and that value is then
converted into its U.S. dollar equivalent on the day of valuation as of 11:30
a.m., New York City time. Securities for which market quotations are not readily
available and other assets are valued as determined by the Investment Adviser
and approved in good faith by the Board of Directors. In instances where a price
or conversion rate determined as provided above is deemed not to represent fair
market value for any security or does not provide a suitable method for
conversion of a foreign currency into U.S. dollars, respectively, the price or
conversion rate, as applicable, will be determined in a manner prescribed by the
Board of Directors.
17
<PAGE>
TAXATION
For a discussion of the U.S. Federal income tax consequences to Record Date
Shareholders and Rights Holders with respect to the Offer, see "The Offer--U.S.
Federal Income Tax Consequences of the Offer" in the Prospectus.
U.S. FEDERAL INCOME TAXES
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS A SUMMARY INCLUDED
FOR GENERAL INFORMATION PURPOSES ONLY. IT SUPPLEMENTS AND DOES NOT INCLUDE ALL
OF THE INFORMATION SET FORTH IN THE PROSPECTUS UNDER "TAXATION--U.S. FEDERAL
INCOME TAXES." IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH
SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF BEING A SHAREHOLDER OF THE FUND, INCLUDING THE
EFFECT AND APPLICABILITY OF U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES THEREIN, WHICH MIGHT APPLY RETROACTIVELY.
GENERAL
The Fund has qualified and intends to continue to qualify to be treated as a
regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the tests for such status.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to stock or securities loans, gains
from the sale or other disposition of stock or securities, and certain other
related income, including, generally, gains from options, futures and forward
contracts and foreign currency gains (under regulations which may be
promulgated, foreign currency gains which are not directly related to the Fund's
principal business of investing in stock or securities may not be treated as
qualifying income for this purpose); (b) derive in each taxable year less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures, forward contracts and foreign currencies, held less than three
months (excluding, for this purpose, gains from foreign currencies (and options,
futures and forward contracts on foreign currencies) that are directly related
to the Fund's principal business of investing in stocks or securities or options
or futures thereon); and (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the fund's
assets is represented by cash, U.S. government securities, securities of other
regulated investment companies, and other securities, with such other securities
of any one issuer qualifying, for purposes of this calculation, only if the
Fund's investment is limited to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment companies)
or of any two or more issuers that the Fund controls and that are determined to
be engaged in the same, similar or related businesses. Corporations owned or
controlled by a government will be treated as separate issuers for this purpose,
except that a debt obligation of such a corporation may be treated as issued by
a government if the obligation is backed by the full faith and credit of such a
government.
18
<PAGE>
Pending legislation would eliminate the 30% requirement; it is unclear whether,
and in what form, such legislation might be enacted.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its income and capital gains, if any, that it distributes
to its shareholders, provided it distributes each taxable year at least 90% of
its "investment company taxable income," calculated without the deduction for
dividends paid, as determined for U.S. Federal income tax purposes ("net
investment income"). Net investment income includes dividends, interest, net
short-term capital gains in excess of any net long-term capital losses and any
capital loss carryovers from prior years, net of expenses, and net gain or loss
on debt securities and futures contracts on debt securities, to the extent
attributable to fluctuations in currency exchange rates, and net gain or loss on
foreign currencies and foreign currency forward contracts. Dividend income
derived by a regulated investment company from its investments is required to be
taken into account for U.S. Federal income tax purposes as of the ex-dividend
date (rather than the payment date, which generally is later). Accordingly, the
Fund, in order to satisfy its distribution requirements, may be required to make
distributions based on earnings that have been accrued but not yet received.
Interest income from discount on indebtedness held by the Fund will also give
rise to such accrued earnings. The Fund intends to distribute to its
shareholders each year all of its net investment income as computed for U.S.
Federal income tax purposes. Non-U.S. exchange control or other regulations,
which may restrict repatriation of investment income, capital or the proceeds of
securities sales by foreign investors such as the Fund, may limit the Fund's
ability to make sufficient distributions to satisfy the 90% distribution
requirement and the calendar year distribution requirement described below. See
"Risk Factors and Special Considerations -- Investment and Repatriation
Restrictions" in the Prospectus and "Other Taxation" below.
To the extent that the Fund retains for investment any net long-term capital
gains in excess of any net short-term capital losses (including in such losses
any capital loss carryovers from prior years), as computed for U.S. Federal
income tax purposes, it will be subject to U.S. Federal income tax on the amount
retained at the rate of 35%. Current proposed legislation, if enacted, would
reduce this rate. If any such amount is retained, the Fund expects to designate
such amount as undistributed capital gains in a notice to its shareholders who
(i) if subject to U.S. Federal income tax on long-term capital gains, will be
required to include in income for such tax purposes, as long-term capital gains,
their proportionate shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of taxes paid by the Fund on such
undistributed amount against their U.S. Federal income tax liabilities and to
claim refunds to the extent such proportionate shares of the tax exceed such
liabilities. For U.S. Federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by 65% of the amount of
undistributed capital gains included in the shareholder's gross income.
The Fund will be subject to a non-deductible U.S. Federal 4% excise tax on
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with a calendar year distribution requirement. To avoid
application of the excise tax, the Fund intends to make its distributions in
accordance with such requirement. Exchange control or other regulations referred
to above, however, could limit the Fund's ability to satisfy such requirement.
DISTRIBUTIONS
Shareholders subject to U.S. Federal alternative minimum tax will be
required to include distributions from the Fund in alternative minimum taxable
income.
19
<PAGE>
If the fair market value of a shareholder's shares is reduced below the
shareholder's cost for such shares as a result of a distribution by the Fund,
such distribution may be taxable for U.S. Federal income tax purposes even
though from an economic viewpoint it may represent a return of invested capital.
Investors should, therefore, consider the tax implications of buying shares in
the Fund prior to a distribution since the price of shares purchased at that
time may reflect the amount of the forthcoming distribution and the distribution
will nevertheless be taxable to the purchasing shareholder. See "General" above
and "Non-U.S. Shareholders" below.
Shareholders will be notified as to the U.S. Federal income tax status of
any dividends, distributions and deemed distributions made by the Fund to its
shareholders.
SALE OF SHARES
Upon the sale or exchange of shares of the Fund, a U.S. shareholder will
realize a taxable gain or loss. Such gain or loss will be a capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term or short-term depending upon whether the shareholder has held the
shares for more than one year. Under current U.S. Federal income tax law, the
maximum rate for long-term capital gains for individuals is 28% and short-term
capital gains are taxed at the same rate as ordinary income. Any loss realized
on a sale or exchange of Fund shares will be disallowed to the extent that the
shares disposed of are replaced, including, for example, pursuant to the Plan,
within a 61-day period beginning 30 days before and ending 30 days after the
date the shares are disposed of. In such a case, a U.S. shareholder will adjust
the basis of the shares acquired to reflect the disallowed loss. Any loss
realized by a U.S. shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains received by
the shareholder (and any amounts retained by the Fund which were designated as
undistributed capital gains) with respect to such shares.
NON-U.S. INCOME TAXES
The Fund will be subject to non-U.S. income taxes, including withholding
taxes. So long as more than 50% in value of the Fund's total assets at the close
of any taxable year in which it is a regulated investment company consists of
stocks or securities of non-U.S. corporations, the Fund may elect to treat any
such non-U.S. taxes paid by it during such year (to the extent that such taxes
are treated as income taxes under U.S. Federal tax principles) as paid by its
shareholders. The Fund has qualified and expects to continue to qualify for this
election annually. The Fund will notify shareholders in writing each year if it
makes the election and of the amount of non-U.S. income taxes, if any, to be
treated as paid by the shareholders and the amount to be treated by them as
income from non-U.S. sources. If the Fund makes the election, shareholders will
be required to include in income their proportionate shares of the amount of
non-U.S. income taxes paid by the Fund for purposes of computing their U.S.
income tax. U.S. shareholders will be entitled to claim either a credit (subject
to the limitations discussed below) or, if they itemize their deductions, a
deduction for their shares of the non-U.S. income taxes in computing their U.S.
Federal income tax liability. (For the treatment of non-U.S. shareholders, see
"Non-U.S. Shareholders" below.) No deduction will be permitted for such income
taxes in computing the alternative minimum tax imposed on individuals.
Shareholders that are exempt from tax under Section 501(a) of the Code, such as
pension plans, generally will derive no benefit from the Fund's
20
<PAGE>
election to pass through the Fund's non-U.S. income taxes to its shareholders.
However, such shareholders should not ordinarily be disadvantaged because the
amount of additional income they are deemed to receive generally will not be
subject to U.S. Federal income tax.
Generally, a credit for non-U.S. income taxes is subject to the limitation
that it may not exceed the shareholder's U.S. Federal income tax (determined
without regard to the availability of the credit) attributable to his or her
total non-U.S. source taxable income. For this purpose, the portion of
distributions paid by the Fund from its non-U.S. source income will be treated
as non-U.S. source income. The Fund's gains from the sale of securities will
generally be treated as derived from U.S. sources, unless capital gains tax were
to be imposed on such gains and the U.S. and the country imposing the tax
entered into a treaty permitting such gains to be treated as derived from a
non-U.S. source, in which case the Fund would expect to elect to treat such
gains as so derived. Additionally, certain currency fluctuation gains and
losses, including currency fluctuation gains from foreign currency denominated
debt securities, receivables and payables, will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
non-U.S. source "passive income," such as the portion of dividends received from
the Fund which qualifies as non-U.S. source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the non-U.S. income taxes paid by the Fund.
The foregoing is only a general description of the treatment of non-U.S.
income taxes under the U.S. Federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
BACKUP WITHHOLDING
Corporate shareholders and other shareholders specified in the Code are
exempt from backup withholding. Backup withholding is not an additional tax. Any
amounts withheld may be credited against the shareholder's U.S. Federal income
tax liability. See "Taxation--U.S. Federal Income Taxes" in the Prospectus and
"Non-U.S. Shareholders" below in this SAI.
NON-U.S. SHAREHOLDERS
U.S. Federal income taxation of a shareholder who, under the Code, is a
non-resident alien individual, a foreign trust or estate, foreign corporation,
or foreign partnership ("non-U.S. shareholder") depends on whether the income
from the Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder. Ordinarily, income from the Fund will not be treated as
so "effectively connected."
If the income from the Fund is not treated as "effectively connected" with a
U.S. trade or business carried on by the non-U.S. shareholder, dividends of net
investment income (which includes short-term capital gains), whether received in
cash or reinvested in shares, will be subject to a U.S. Federal income tax of
30% (or lower treaty rate), which tax is generally withheld from such dividends.
See the definition of "net investment income" at "General" above. Furthermore,
such non-U.S. shareholders may be subject to U.S. Federal income tax at the rate
of 30% (or lower treaty rate) on their income resulting from the Fund's election
(described above) to "pass through" the amount of non-U.S. taxes paid by the
Fund, but may not be able to claim a credit or deduction with respect to the
non-U.S. income taxes treated as having been paid by them.
21
<PAGE>
A non-U.S. shareholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
Federal income taxation on distributions of net long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains and any
gain realized upon the sale of Fund shares. The Fund will incur a U.S. Federal
income tax liability with respect to amounts retained by it that are designated
as undistributed capital gains. The non-U.S. shareholder may claim a credit with
respect to such taxes paid by the Fund and may claim a refund where such taxes
exceed such shareholder's U.S. Federal income tax liabilities, but must file a
tax return to do so. In addition, if the non-U.S. shareholder is treated as a
non-resident alien individual but is physically present in the United States for
more than 182 days during the taxable year, then in certain circumstances such
distributions of net long-term capital gains, amounts retained by the Fund which
are designated as undistributed capital gains, and gain from the sale of Fund
shares will be subject to a U.S. Federal income tax of 30% (or lower treaty
rate). In the case of a non-U.S. shareholder who is a non-resident alien
individual, the Fund may be required to withhold U.S. Federal income tax at a
rate of 31% of distributions (including distributions of net long-term capital
gains) unless IRS Form W-8 is provided. See "Taxation -- U.S. Federal Income
Taxes" in the Prospectus and "Backup Withholding" above in this SAI.
If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. shareholder, then distributions of net
investment income (which includes short-term capital gains), whether received in
cash or reinvested in shares, net long-term capital gains and amounts otherwise
includible in income, such as amounts retained by the Fund which are designated
as undistributed capital gains, and any gains realized upon the sale of shares
of the fund, will be subject to U.S. Federal income tax at the graduated rates
applicable to U.S. taxpayers. Non-U.S. shareholders that are corporations may
also be subject to the branch profits tax.
Transfers of shares of the Fund by gift by a non-U.S. shareholder will
generally not be subject to U.S. Federal gift tax, but the value of shares of
the Fund held by such a shareholder at death will be includible in the
shareholder's gross estate for U.S. Federal estate tax purposes.
The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.
Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
the Fund.
FOREIGN EXCHANGE-RELATED TRANSACTIONS; HEDGING TRANSACTIONS
Debt securities denominated in foreign currencies (and, in some
circumstances, futures, options, forwards and other similar financial
instruments based on foreign currencies) held by the Fund, and gains or losses
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues income or expense denominated in a foreign currency and the time
the Fund actually collects such income or pays such expense, will be subject to
special rules for determining, among other things, the character and timing of
income, deductions, gain, and loss attributable to foreign exchange gain or
loss. In general, these rules operate to treat as ordinary income or loss (to be
taken into account in computing net investment income) the portion of a gain or
loss so attributable. In addition, the hedging transactions which may be
undertaken by the Fund may result in "straddles" for U.S. Federal income
22
<PAGE>
tax purposes. The straddle rules may affect the character and timing of income,
deduction, gain or loss recognized by the Fund. Certain hedging transactions may
increase the amount of short-term capital gain realized by the Fund, which is
taxed as ordinary income when distributed to shareholders. These rules may also
require the acceleration of the recognition of income or gain by the Fund before
the Fund receives the cash required to make distributions to shareholders. All
of these rules may affect the timing and amount of distributions to
shareholders. The gross income and diversification requirements applicable to
regulated investment companies, described above, may limit the extent to which
the Fund will be able to engage in transactions in options, futures and currency
exchange contracts.
OTHER TAXATION
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Fund may be subject to U.S. Federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income or gain is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. Proposed regulations would generally
allow the Fund to elect to mark to market annually all of the stock of passive
foreign investment companies held by the Fund. Gain recognized pursuant to such
election is generally treated as ordinary income subject to the distribution
requirements discussed above. It is unclear, however, whether and in what form
such regulations might be promulgated in final form. If the Fund were to invest
in a passive foreign investment company which the Fund elected to treat as a
"qualified electing fund" under the Code, in lieu of the foregoing requirements,
the Fund would ordinarily be required to include in income each year a portion
of the ordinary earnings and net capital gains of the qualified electing fund,
even if not distributed to the Fund, and such amounts would be subject to the
90% and calendar year distribution requirements described above. Proposed
legislation would revise the passive foreign investment company rules in various
respects; it is unclear whether and in what form, such legislation might be
enacted.
Distributions from the Fund may be subject to additional U.S. Federal,
state, local and non-U.S. taxes depending on each shareholder's particular
situation. Shareholders should consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund and of the
possible impact of changes in applicable tax laws.
If the Fund did not qualify as a regulated investment company for any
taxable year, (i) it would be subject to U.S. Federal income tax at regular
corporate rates on its taxable income (which would be computed without deduction
for distributions paid to shareholders) and to certain state and local taxes,
(ii) its distributions to shareholders out of its current or accumulated
earnings and profits would be taxable to shareholders as ordinary dividend
income (even if derived from long-term capital gains) and subject to withholding
in the case of non-U.S. shareholders and (iii) non-U.S. income taxes, and U.S.
Federal income taxes paid by the Fund on any undistributed long-term capital
gains, would not "pass through" to shareholders. In addition, if the Fund failed
to qualify for taxation as a regulated investment company for a period greater
than one taxable year, the Fund would be required to recognize any net built-in
gains (the excess of aggregate gains over aggregate losses that would have been
realized if it had been liquidated) if it were to qualify as a regulated
investment company in a later taxable year.
23
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Advisory Agreement authorizes and directs the Investment
Adviser to place orders for the purchase, sale or exchange of the Fund's
investments with brokers or dealers selected by the Investment Adviser in its
discretion, provided, however, that in connection with the placing of such
orders and the selection of such brokers or dealers the Investment Adviser shall
seek to obtain execution and pricing within the policy guidelines established by
the Fund's Board of Directors. The Investment Adviser expects to place all such
orders for the purchase and sale of portfolio securities and to buy and sell
such securities for the Fund with a substantial number of brokers and dealers.
In so doing, the Investment Adviser will use its best efforts to obtain the most
favorable price and execution available. The Fund may, however, pay higher than
the lowest available commission rates when the Investment Adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction. In seeking the most favorable
price and execution, the Investment Adviser, having in mind the Fund's best
interests, will consider all factors it deems relevant, including, without
limitation, price, the size of the transaction, the nature of the market for the
security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealers involved, and the quality of the service
rendered by the broker-dealers in other transactions. These are judgmental
determinations and are weighed by the Investment Adviser in determining the
overall reasonableness of brokerage commissions.
Transactions on U.S. stock exchanges and other agency transactions involve
the payment by the Fund of negotiated brokerage commissions, which vary among
different brokers. In addition, a broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign countries generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States. Since most brokerage transactions for the Fund will be placed outside
the United States, certain portfolio transaction costs for the Fund may be
higher than the fees charged for similar transactions executed in the United
States.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), the Investment Adviser may cause the Fund to pay a broker-dealer
which provides brokerage and research services, as such services are defined in
the 1934 Act, to the Investment Adviser an amount of commission for effecting a
securities transaction for the Fund in excess of the amount another broker-
dealer would have charged for effecting the transaction.
The Board of Directors of the Fund has authorized the Investment Adviser to
employ brokerage firms which are affiliated with the Investment Adviser to
effect brokerage transactions in portfolio securities for the Fund on various
foreign securities exchanges on which such firms have trading privileges. The
Fund has no understanding or arrangement to direct any specific portion of its
brokerage to brokerage firms affiliated with the Investment Adviser and will not
direct brokerage to any of such firms in recognition of research services. Under
the 1940 Act, the commissions, fees or other remuneration received by an
affiliated person of the Fund must be reasonable and fair compared to the
commissions, fees and remuneration received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time.
24
<PAGE>
Affiliated persons (as such term is defined in the 1940 Act) of the
Investment Adviser are prohibited by the 1940 Act from dealing with the Fund as
principal in the purchase or sale of securities and from purchasing securities
in public offerings which are not registered under the Securities Act in which
any broker-dealer affiliated with the Investment Adviser or any affiliates
thereof participate as an underwriter. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own account, the Fund will not deal in the over-the-counter
market with affiliated persons. The Investment Adviser does not believe that any
of such restrictions will materially impair its ability to manage the Fund's
portfolio investments.
Investment decisions for the Fund are made independently from decisions made
by the Investment Adviser for other investment advisory clients, with an overall
view to achieving their respective investment objectives. Investment decisions
are the product of many factors and considerations. Thus, other investment
advisory clients of the Investment Adviser may also invest in the same
securities as the Fund. If those funds or advisory clients are prepared to
invest in, or desire to dispose of, the same security at the same time as the
Fund, however, transactions in such securities will be made, insofar as
possible, in a manner which in the Investment Adviser's opinion is equitable to
each respective client involved. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by the Fund or the
price paid or received by the Fund. In addition, because of different investment
objectives, a particular security may be purchased for one or more funds or
accounts when one or more funds or accounts are selling the same security.
Although the Investment Advisory Agreement contains no restrictions on
portfolio turnover, it is not the Fund's policy to engage in transactions with
the objective of seeking profits from short-term trading. In addition, the Fund
intends to comply with the short-term income restriction applicable to regulated
investment companies under the Code. See "Taxation--United States Federal Income
Taxes" above in this SAI. It is expected that the annual portfolio turnover rate
of the Fund will not exceed 100%. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less.
For the year ended October 31, 1995, the Fund made no payments to any broker
that is an affiliated person of the Investment Adviser or any of its affiliates.
In that year, the Fund paid brokerage commissions of $ ( %) of the
total brokerage commissions) for transactions placed with brokers and dealers
who provided supplementary research, market and statistical information to the
Fund or the Investment Adviser. The amount of such transactions aggregated
$ . The balance of the brokerage commissions for the year ended October
31, 1995 was not allocated to any particular broker or dealer or with regard to
the above-mentioned or any special factors.
25
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
[CAPTION]
<TABLE>
<C> <S> <C>
COMMON STOCKS - 96.6%
SHARES VALUE US$
--------- -----------
<C> <S> <C>
CHINA - 1.9%
Services - 0.5%
2,832,000 Chiwan Wharf Holdings
Ltd. 'B' 1,263,795
-----------
Utilities -Electrical &
Gas - 1.4%
220,000 Huaneng Power
International, Ltd. (a)* 3,492,500
-----------
TOTAL CHINA
(COST $5,391,276) 4,756,295
-----------
HONG KONG - 20.9%
Chemicals - 0.7%
3,160,000 Chen Hsong Holdings Ltd. 1,839,348
-----------
Construction &
Housing - 1.4%
4,522,000 Kumagai Gumi Ltd. 3,421,770
-----------
Holding Company - 1.7%
7,000,000 Guangdong Investments 4,119,778
-----------
Leisure & Travel - 3.5%
4,835,000 Cathay Pacific Airways 7,129,608
2,000,000 Shun Tak Holdings Ltd. 1,578,062
-----------
8,707,670
-----------
Multi-Industry - 6.0%
2,934,000 Citic Pacific Ltd. 9,165,192
750,000 Swire Pacific Ltd. 'A' 5,626,698
-----------
14,791,890
-----------
Real Estate - 4.0%
2,675,000 Harbour Centre
Development Ltd. 2,992,983
874,000 Sun Hung Kai Properties
Ltd. 6,980,921
-----------
9,973,904
-----------
Services - 3.6%
1,592,000 Hutchison Whampoa 8,772,371
-----------
TOTAL HONG KONG
(COST $46,747,444) 51,626,731
-----------
INDIA - 6.1%
Automobile - 1.8%
168,000 Bajaj Auto Ltd. (b)* 4,515,000
-----------
Health & Personal Care - 1.1%
122,000 Ranbaxy Laboratories (c) 2,775,500
-----------
Household
Products - 0.6%
70,000 Hindustan Lever Ltd. 1,305,572
-----------
Machinery &
Engineering - 2.6%
207,200 Tata Engineering &
Locomotive
Company Ltd. 2,521,642
191,000 Tata Engineering &
Locomotive
Company Ltd. (b) 3,961,340
-----------
6,482,982
-----------
TOTAL INDIA
(COST $14,242,545) 15,079,054
-----------
COMMON STOCKS
<CAPTION>
SHARES VALUE US$
--------- -----------
<C> <S> <C>
INDONESIA - 8.3%
Beverages &
Tobacco - 2.1%
600,000 P.T. Gudang Garam 5,220,264
-----------
Building Materials &
Components - 1.2%
784,000 P.T. Indocement Tunggal 2,901,145
-----------
Food & Household
Products - 2.9%
82,500 P.T. Unilever Indonesia 1,162,996
1,061,950 P.T. Indofood Sukses
Makmur 4,912,104
230,000 P.T. Sorini* 1,281,718
-----------
7,356,818
-----------
Health & Personal
Care - 0.5%
360,000 P.T. Kalbe Farma 1,141,850
-----------
Real Estate - 0.5%
450,000 P.T. Jaya Real Property 1,283,590
-----------
Telecommunications - 1.1%
82,000 P.T. Indonesian
Satellite Corp. (a) 2,706,000
-----------
TOTAL INDONESIA
(COST $20,015,391) 20,609,667
-----------
JAPAN - 16.0%
Financial
Services - 1.9%
261,000 Nomura Securities Co.,
Ltd.* 4,785,000
-----------
Health & Personal
Care - 0.7%
120,000 Torii & Co., Ltd 1,823,529
-----------
Industrial
Components - 7.2%
225,000 Glory Ltd. 7,919,118
104,000 Mabuchi Motors Co., Ltd. 6,311,373
56,700 Hirose Electric 3,629,912
-----------
17,860,403
-----------
Insurance - 1.0%
450,000 Koa Fire & Marine Ins.
Co., Ltd. 2,466,176
-----------
Leisure & Tourism - 0.4%
102,000 Airport Facilities Co.,
Ltd. 990,000
-----------
Machinery &
Engineering - 1.2%
482,000 Amada Sonoike Co., Ltd. 2,958,157
-----------
Merchandising - 1.2%
172,900 Kahma Co., Ltd. 2,915,569
-----------
Real Estate - 0.9%
150,000 Mitsui Homes Co., Ltd. 2,132,353
-----------
Telecommunications - ]1.5%
450 DDI Corporation 3,657,352
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
F-1
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
<TABLE>
<C> <S> <C>
COMMON STOCKS
<CAPTION>
SHARES VALUE US$
--------- -----------
<C> <S> <C>
JAPAN (CONCLUDED)
TOTAL JAPAN
(COST $43,132,501) 39,588,539
-----------
KOREA - 7.7%
Banking - 1.0%
96,000 Shinhan Bank(1) 2,269,946
8,079 Shinhan Bank (New)* 166,839
-----------
2,436,785
-----------
Electronics - 3.0%
27,338 Samsung Electronics(1) 6,092,897
5,095 Samsung Electronics
(New)*(1) 1,122,085
478 Samsung Electronics (New
2)*(1) 103,085
-----------
7,318,067
-----------
Metals-Steel - 0.7%
8,000 Pohang Iron & Steel Co.,
Ltd.(1) 804,318
40,000 Pohang Iron & Steel Co.,
Ltd. (d) 1,040,000
-----------
1,844,318
-----------
Telecommunications - 1.7%
4,450 Korea Mobile
Telecommunications
Corp.*(1) 4,157,734
-----------
Utilities-Electrical &
Gas - 1.3%
77,000 Korea Electric Power
Corp.(1) 3,376,235
-----------
TOTAL KOREA
(COST $17,056,270) 19,133,139
-----------
MALAYSIA - 12.5%
Banking - 3.3%
1,265,000 DCB Holdings Berhad 3,584,416
584,000 Malayan Banking Berhad 4,711,531
-----------
8,295,947
-----------
Construction - 2.0%
3,171,000 Renong Berhad 4,841,983
-----------
Distribution - 0.8%
246,000 Edaran Otomobil Nasional
Berhad 1,936,246
-----------
Food & Household
Products - 0.7%
236,000 Nestle (Malaysia) Berhad 1,662,495
-----------
Insurance - 1.2%
741,000 Malaysian Assurance
Alliance Berhad 3,003,660
-----------
Leisure & Tourism - 2.5%
741,500 Genting Berhad (1) 6,262,917
-----------
Real Estate - 2.0%
2,069,000 Island & Peninsular
Berhad 5,007,615
-----------
TOTAL MALAYSIA
(COST $28,782,473) 31,010,863
-----------
COMMON STOCKS
<CAPTION>
SHARES VALUE US$
--------- -----------
<C> <S> <C>
PHILIPPINES - 5.1%
Beverages &
Tobacco - 0.7%
560,600 San Miguel Corp. 'B' 1,855,720
-----------
Real Estate - 2.4%
2,381,250 Ayala Land, Inc. 'B' 2,749,711
2,600,000 C&P Homes Inc.* 1,676,522
5,200,000 SM Prime Holdings Inc.* 1,401,078
-----------
5,827,311
-----------
Ship Repair - 0.0%
111,850 Keppel Philippine
Holdings 'B' * 51,663
-----------
Telecommunications - 1.0%
43,170 Philippine Long Distance
Telephone 2,409,411
-----------
Utilities -Electrical &
Gas - 1.0%
333,500 Manila Electric Co. 'B' 2,490,339
-----------
TOTAL PHILIPPINES
(COST $12,714,244) 12,634,444
-----------
SINGAPORE - 9.3%
Banking - 3.3%
740,000 Overseas Union Bank Ltd. 4,607,982
407,880 United Overseas Bank
Ltd. 3,578,907
-----------
8,186,889
-----------
Broadcasting &
Publishing - 1.6%
253,200 Singapore Press Holdings
Ltd. 3,959,609
-----------
Machinery &
Engineering - 2.0%
608,000 Keppel Corporation Ltd. 4,990,660
-----------
Real Estate - 2.4%
480,000 City Developments Ltd. 2,971,979
956,000 DBS Land Ltd. 2,827,682
-----------
5,799,661
-----------
TOTAL SINGAPORE
(COST $21,160,936) 22,936,819
-----------
THAILAND - 8.8%
Banking - 3.1%
3,500,000 Siam City Bank Ltd. 4,451,510
386,700 Thai Farmers Bank Ltd. 3,196,884
-----------
7,648,394
-----------
Building Materials &
Components - 1.9%
84,000 Siam Cement Co. Ltd. 4,580,604
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
F-2
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 1995
<TABLE>
<C> <S> <C>
COMMON STOCKS
<CAPTION>
SHARES VALUE US$
--------- -----------
<C> <S> <C>
THAILAND (CONCLUDED)
Real Estate - 1.4%
220,000 Land & House Corp. Ltd. 3,550,080
-----------
Telecommunications - 1.1%
919,000 TelecomAsia Corp.* 2,775,994
-----------
Utilities -Electrical &
Gas - 1.3%
913,000 Electricity Generating
Public Co., Ltd.* 3,120,747
-----------
TOTAL THAILAND
(COST $22,289,706) 21,675,819
-----------
TOTAL COMMON STOCKS
(COST $231,532,786) 239,051,370
-----------
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE BONDS - 0.6%
PRINCIPAL
AMOUNT
(000) VALUES US$
--------- ------------
<C> <S> <C>
JAPAN - 0.6%
Merchandising - 0.6%
Swfr Arcland Sakamoto
1,900 .125% 2/20/98
(Cost $1,386,916) 1,496,162
------------
TOTAL CONVERTIBLE BONDS
(COST $1,386,916) 1,496,162
------------
Total Investments
(Cost $232,919,702)
97.2% 240,547,532
Other assets less
liabilities 2.8% 6,939,592
------------
Net Assets 100% 247,487,124
------------
------------
</TABLE>
* Non-income producing security
(a) American Depository Receipt
(b) Global Depositary Receipt
(c) Global Depositary Share
(d) American Depositary Share
(1) Priced at fair value as determined by the Board of Directors
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
F-3
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost
$232,919,702) $240,547,532
Cash 8,145,946
Receivable for dividends 140,159
Receivable for interest 57,649
Net unrealized appreciation on forward foreign
exchange contracts 233,732
Deferred organization expenses 107,623
Prepaid expenses 38,771
------------
Total Assets 249,271,412
------------
LIABILITIES:
Payable for securities purchased 1,286,803
Advisory fee payable 211,828
Administration fee payable 52,957
Accrued expenses payable and other liabilities 232,700
------------
Total Liabilities 1,784,288
------------
Net Assets $247,487,124
------------
------------
NET ASSETS WERE COMPOSED OF:
Capital Stock, par value ($.01 per share,
applicable to
19,607,100 shares issued: authorized 100,000,000
shares) $ 196,071
Paid-in capital in excess of par 271,484,870
Accumulated net realized losses from investments (32,064,584)
Net unrealized appreciation of investments 7,627,830
Net unrealized appreciation on translation of
assets and liabilities in foreign currencies and
forward foreign currency contracts 242,937
------------
Net Assets $247,487,124
------------
------------
Net asset value per share
($247,487,124 divided by 19,607,100
shares outstanding) $ 12.62
------------
------------
</TABLE>
See accompanying notes to financial statements.
- - --------------------------------------------------------------------------------
F-4
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$439,833) $ 3,697,277
Interest and discount earned 694,898
------------
Total Income 4,392,175
------------
EXPENSES:
Investment advisory fee 2,479,442
Administration fee 619,861
Custodian's fees and expenses 370,550
Legal fees and expenses 150,615
Transfer agent's fees and expenses 114,282
Directors' fees and expenses 84,074
Reports to shareholders 84,040
Insurance expense 82,632
Independent accountants' fees and expenses 40,335
Amortization of deferred organization expenses 33,981
Registration fees 24,260
Miscellaneous expenses 10,820
Interest expense 1,345
------------
Total Expenses 4,096,237
------------
NET INVESTMENT INCOME 295,938
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized loss from:
Investments (26,048,489)
Foreign currency transactions and forward
foreign currency contracts (3,181,314)
Net change in unrealized appreciation of:
Investments 2,267,623
Translation of assets and liabilities in
foreign currencies and forward foreign
currency contracts 2,734,038
------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS (24,228,142)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(23,932,204)
------------
------------
</TABLE>
See accompanying notes to financial statements.
- - --------------------------------------------------------------------------------
F-5
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
DECEMBER 30, 1993*
FOR THE YEAR ENDED TO OCTOBER 31,
OCTOBER 31, 1995 1994
- - --------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss) $ 295,938 $ (211,874)
Net realized loss on
investment
transactions (26,048,489) (6,016,095)
Net realized loss from
foreign currency
transactions and
forward foreign
currency contracts (3,181,314) (188,277)
Net change in unrealized
appreciation on
investments 2,267,623 5,360,207
Net change in unrealized
appreciation
(depreciation) on
translation of assets
and liabilities in
foreign currencies and
forward foreign
currency contracts 2,734,038 (2,491,101)
-------------------- ------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS (23,932,204) (3,547,140)
-------------------- ------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from the initial
public offering of
17,200,000 shares -- 242,520,000
Proceeds from the
issuance of 2,400,000
shares in connection
with exercising of an
overallotment option
granted to
underwriters of the
initial public
offering -- 33,840,000
Offering costs charged to
paid-in capital in
excess of par -- (1,493,642)
-------------------- ------------------
NET INCREASE IN NET ASSETS
DERIVED FROM CAPITAL STOCK
TRANSACTIONS -- 274,866,358
-------------------- ------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS (23,932,204) 271,319,218
NET ASSETS:
Beginning of period 271,419,328 100,110
-------------------- ------------------
End of period $247,487,124 $271,419,328
-------------------- ------------------
-------------------- ------------------
* Commencement of investment
operations
</TABLE>
See accompanying notes to financial statements
- - --------------------------------------------------------------------------------
F-6
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES:
Schroder Asian Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund was incorporated in Maryland on
November 5, 1993 and investment operations commenced on December 30, 1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
SECURITY VALUATION
Portfolio securities listed on a recognized stock exchange or NASDAQ
National Market System are valued at the last reported sales price on the
exchange on which the securities are principally traded. Other securities for
which market quotations are readily available are valued at the last sales
price prior to the time of determination. If there is no sales price on such
date, and if bid and asked quotations are available, such securities are
valued at the mean between the last current bid and asked prices. Securities
for which market quotations are not readily available, foreign securities
where local regulators restrict purchases by foreign investors and other
assets are valued by procedures as determined by the Investment Adviser and
approved in good faith by the Board of Directors. At October 31, 1995, the
portfolio contained eight securities for which market quotations were not
available and which were fair valued by the Adviser. These securities had a
total value of $24,189,217, representing 9.8% of the Fund's net assets.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Dividend income is
recorded on the ex-dividend date except for certain dividends from foreign
securities which are recorded as soon as the Fund is informed of the ex-
dividend date. Interest income (including accretion of discount) is recorded
on the accrual basis. Realized gains and losses from security transactions
are determined on the identified cost basis.
FOREIGN CURRENCY TRANSLATION
Foreign currency amounts denominated in or expected to settle in foreign
currencies (FC) are translated into U.S. dollars on the following basis:
market value of investment securities and other assets and liabilities at the
rate of exchange at the end of the respective period, purchases and sales of
investment securities and income and expenses at the rate of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from the investment.
Reported net realized foreign exchange gains or losses arise from sales
of portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions payable by the Fund, if any, are accrued on
the ex-dividend date. Dividends from net investment income and capital gain
distributions are determined in accordance with U.S. Federal income tax
regulations which may differ from generally accepted accounting principles.
At December 31, 1995, the Fund decreased paid-in-capital by $2,885,376,
decreased undistributed net investment income by $295,938 and increased
accumulated realized losses from foreign currency transactions by $3,181,314.
These differences are primarily due to the reclassification of realized
losses on foreign currency and forward foreign currency contracts to ordinary
income.
- - --------------------------------------------------------------------------------
F-7
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORWARD CONTRACTS
The Fund may enter into forward contracts to purchase or sell foreign
currencies to protect against the effect of possible adverse movements in
foreign exchange rates on the U.S. dollar value of the underlying portfolio.
Risks associated with such contracts include the movement in value of the
foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. Forward exchange contracts are valued at the forward
rate and are marked-to-market weekly. Fluctuations in the value of such
contracts are recorded as unrealized gains or losses; realized gains or
losses include net gains or losses on contracts which have terminated by
settlement.
ORGANIZATIONAL COSTS
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight line basis over a
five-year period from the commencement of investment operations.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate cost of securities purchased and the proceeds from sales
of securities, excluding short-term investments, for the year ended
October 31, 1995 were $167,028,062 and $158,464,792, respectively.
3. FORWARD EXCHANGE CONTRACTS AS OF OCTOBER 31, 1995:
<TABLE>
<CAPTION>
Contracts to Settlement In Exchange Unrealized appreciation
Deliver Date for Value ($) (depreciation) ($)
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------
HEDGE POSITIONS:
Japanese Yen Y1,200,000,000 12/21/95 $12,206,286 11,854,342 351,944
Japanese Yen Y1,430,000,000 3/22/96 $14,206,239 14,324,451 (118,212)
-----------
Total $ 233,732
-----------
-----------
</TABLE>
4. ADVISORY AND ADMINISTRATIVE FEES:
The Fund retains Schroder Capital Management International Inc. as
Investment Adviser. The investment advisory contract provides for a monthly
fee at the annual rate of 1% on the Fund's average weekly net assets. The
Fund paid or accrued fees to the Investment Adviser of $2,479,442 for the
year ended October 31, 1995.
The Fund retains Middlesex Administrators L.P. as the Administrator. For
its services, the Administrator receives a monthly fee equal to the greater
of $150,000 per annum or an annual rate of .25% of the Fund's average weekly
net assets. The Fund paid or accrued fees to the Administrator of $619,861
during the year ended October 31, 1995.
5. FEDERAL INCOME TAXES:
Since it is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its stockholders, no
Federal income tax provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
For Federal income tax purposes, the tax basis of investment securities
owned at October 31, 1995 was $232,919,702. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $23,361,766 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value was
$15,733,936.
For Federal income tax purposes, the Fund had a capital loss carry
forward as of October 31, 1995 of $32,064,584 ($6,016,095 expiring in 2002
and $26,048,489 expiring in 2003) which is available to offset future capital
gains, subject to limitations imposed under the Internal Revenue Code.
- - --------------------------------------------------------------------------------
F-8
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL STOCK:
There are 100,000,000 shares of $.01 par value common stock
authorized. Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
For the year December 30, 1993*
ended to
October 31, 1995 October 31, 1994
---------------- ------------------
<S> <C> <C>
Shares outstanding at beginning of
period 19,607,100 --
Shares issued to the Adviser -- 7,100
Shares issued in initial public
offering -- 17,200,000
Shares issued in underwriters'
over-allotment option -- 2,400,000
---------------- ----------
Shares outstanding at end of
period............................ 19,607,100 19,607,100
---------------- ----------
---------------- ----------
</TABLE>
* Commencement of investment operations.
7. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios
For the Year
ended December 30,1993*
October 31, to
1995 October 31, 1994
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning of period $ 13.84 $ 14.01**
Investment Operations:
Net investment income (loss) 0.02 (.01)
Net realized and unrealized loss on
investments and foreign currency
transactions (1.24) (.16)
--------------- -------
Total from investment operations (1.22) (.17)
--------------- -------
Net asset value, end of period $ 12.62 $ 13.84
--------------- -------
--------------- -------
Market value, end of period $ 11.125 $ 12.00
--------------- -------
--------------- -------
Total investment return based on (1):
Market Value -7.29% -20.00%
--------------- -------
Net Asset Value -8.82% -1.21%
--------------- -------
Ratio/Supplementary Data:
Net assets, fiscal year end (Millions) $ 247.49 $271.42
Ratio of expenses to average net assets 1.65% 1.59%***
Ratio of net investment income (loss)
average net assets 0.12% (0.10)%***
Portfolio turnover rate 66.79% 19.76%
</TABLE>
* Commencement of investment operations.
** Net of $.09 of offering expenses.
*** Annualized
(1) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment return does not reflect
sales loads or brokerage commissions. Generally, total investment return based
on net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
- - --------------------------------------------------------------------------------
F-9
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
8. QUARTERLY DATA (UNAUDITED):
<TABLE>
<CAPTION>
NET REALIZED AND PRICE
UNREALIZED NET INCREASE ON THE
GAINS (LOSSES) ON (DECREASE) NEW
INVESTMENTS IN NET ASSETS YORK
TOTAL NET INVESTMENT AND FOREIGN CURRENCY RESULTING FROM STOCK
INCOME INCOME (LOSS) TRANSACTIONS OPERATIONS EXCHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
<CAPTION>
QUARTERLY PER PER PER PER
PERIOD AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE HIGH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
12/30/93* to
01/31/94 $365,127 $0.02 $1,916 - $(6,528,281) $(0.33) $(6,526,365) $(0.33) $16 1/8
- - ------------------------------------------------------------------------------------------------------------------------------
02/01/94 to
04/30/94 1,019,686 0.05 (75,248) - (14,749,149) (0.75) (14,824,397) (0.75) 15 1/8
- - ------------------------------------------------------------------------------------------------------------------------------
05/01/94 to
07/31/94 943,863 0.05 (161,721) ($0.01) 3,714,093 0.19 3,552,372 0.18 14 1/8
- - ------------------------------------------------------------------------------------------------------------------------------
08/01/94 to
10/31/94 904,608 0.04 23,179 - 14,228,071 0.73 14,251,250 0.73 13 3/4
- - ------------------------------------------------------------------------------------------------------------------------------
11/01/94 to
01/31/95 510,128 0.03 (518,073) (0.03) (43,861,236) (2.23) (44,379,309) (2.26) 12 1/8
- - ------------------------------------------------------------------------------------------------------------------------------
02/01/95 to
04/30/95 1,263,061 0.06 291,404 0.02 7,583,199 0.38 7,874,603 0.40 10 7/8
- - ------------------------------------------------------------------------------------------------------------------------------
05/01/95 to
07/31/95 1,591,359 0.08 534,445 0.03 (10,887,137) (0.56) (10,352,692) (0.53) 12 1/8
- - ------------------------------------------------------------------------------------------------------------------------------
08/01/95 to
10/31/95 1,027,627 0.05 (11,838) 0.00 22,937,032 1.17 22,925,194 1.17 11 7/8
<CAPTION>
<S> <C>
QUARTERLY
PERIOD LOW
<S> <C>
- - -------------
12/30/93* to
01/31/94 $15
- - -------------
02/01/94 to
04/30/94 10 1/2
- - -------------
05/01/94 to
07/31/94 11 1/4
- - -------------
08/01/94 to
10/31/94 11 1/2
- - -------------
11/01/94 to
01/31/95 9 5/8
- - -------------
02/01/95 to
04/30/95 9 3/8
- - -------------
05/01/95 to
07/31/95 10 1/8
- - -------------
08/01/95 to
10/31/95 10 5/8
</TABLE>
* Commencement of investment operations.
PROXY RESULTS (UNAUDITED)
During the year ended October 31, 1995, Schroder Asian Growth Fund,
Inc. shareholders voted on the following proposals. The proposals were
approved at the annual meeting of shareholders on May 11, 1995. The
description of the proposals and number of shares voted are as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Shares Voted
For Abstentions
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To elect the Directors to the Fund: Peter E. Guernsey(1) 16,790,627 849,493
John I. Howell(2) 16,792,027 848,093
Laura E. Luckyn-Malone(3) 16,879,220 760,900
William L. Means(3) 16,838,338 801,782
David M. Salisbury(2) 16,887,646 752,474
I. Peter Sedgwick(1) 16,886,511 753,609
Madelon DeVoe Talley(3) 16,888,681 751,439
</TABLE>
(1) Nominee for Class I director to serve until 1996 annual meeting of
stockholders.
(2) Nominee for Class II director to serve until 1997 annual meeting of
stockholders.
(3) Nominee for Class III director to serve until 1998 annual meeting of
stockholders.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted
For Against Abstentions
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To ratify the selection of Coopers & Lybrand L.L.P. as
the Fund's independent accountants. 16,983,359 325,743 331,018
3. To approve the Investment Advisory Agreement between
the Fund and the Investment Advisor. 16,205,455 742,817 691,848
</TABLE>
- - --------------------------------------------------------------------------------
F-10
<PAGE>
- - --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Board of Directors of
Schroder Asian Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Schroder Asian Growth Fund, Inc., including the schedule of investments, as of
October 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
the year then ended and for the period December 30, 1993 (commencement of
operations) to October 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Schroder Asian Growth Fund, Inc. as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets and financial
highlights for the year then ended and for the period December 30, 1993
(commencement of operations) to October 31, 1994, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
December 15, 1995
- - --------------------------------------------------------------------------------
F-11
<PAGE>
SCHRODER ASIAN GROWTH FUND, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
The following Financial Statements have been included as part of Item
23:
<TABLE>
<CAPTION>
(i) Schedule of Investment, October 31, 1995
<S> <C>
(ii) Statement of Assets and Liabilities, October 31, 1995
(iii) Statement of Operations for the year ended October 31, 1995
(iv) Statements of Changes in Net Assets, for the year ended October 31, 1995 and
the period December 30, 1993 (commencement of investment operations) to
October 31, 1994
(v) Notes to Financial Statements, October 31, 1995
(vi) Report of Independent Accountants, dated December 4, 1995
</TABLE>
(2) Exhibits:
<TABLE>
<CAPTION>
a. Articles of Incorporation as of November 5, 1993. Incorporated by reference to
Exhibit 2(a)(i) to the Fund's Registration Statement on Form N-2 (No. 33-71394)
(the "Registration Statement") filed with the Commission on November 8, 1993.
<S> <C>
b. Bylaws. Incorporated by reference to Exhibit 2(b)(i) to the Registration
Statement.
c. Not applicable.
d. (i) Specimen certificate representing shares of Common Stock, par value $.01
per share. Incorporated by reference to Exhibit 2(d) to Amendment No. 1 to the
Fund's Registration Statement.
(ii) Form of Subscription Certificate.+
(iii) Form of Notice of Guaranteed Delivery.+
(iv) Form of DTC Participant Over-Subscription Form.+
e. Dividend Reinvestment Plan. (Incorporated by reference to Exhibit 2(e) to
Amendment No. 2 to the Registration Statement ("Amendment No. 2").)
f. Not applicable.
g. Investment Advisory Agreement, dated December 21, 1993, between the Fund and
the Investment Adviser. (Incorporated by reference to Exhibit 2(g) to Amendment
No. 2.)
h. Form of Dealer-Manager Agreement (including form of Soliciting Dealer Agreement
as Exhibit A).+
i. Not applicable.
j. (i) Custodian Agreement, dated December 16, 1993 between the Fund and the
Custodian. (Incorporated by reference to Exhibit 2(j)(i) to Amendment No. 2).
(ii) Fee Schedule relating to the Custodian Agreement. (Incorporated by
reference to Exhibit 2(j)(ii) to Amendment No. 2.)
(iii) Form of Subcustodian Agreement. (Incorporated by reference to Exhibit
2(j)(iii) to Amendment No. 2.)
k. (i) Form of Administration Agreement between the Fund and the Administrator.
(Incorporated by reference to Exhibit 2(k)(i) to Amendment No. 2.)
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(ii) Registrar, Transfer Agency and Services Agreement, dated December 16,
1993, between the Fund and State Street Bank & Trust Company. (Incorporated by
reference to Exhibit 2(k)(ii) to Amendment No. 2.)
(iii) Form of Subscription Agent Agreement.+
(iv) Form of Information Agent Agreement.+
l. Opinion of Debevoise & Plimpton and consent to use the same.+
m. Not applicable.
n. Consent of Coopers & Lybrand L.L.P.
o. Not applicable.
p. Not applicable.
q. Not applicable.
r. Financial Data Schedule.
Other Exhibit: Powers of Attorney.
</TABLE>
- - ------------
+ To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Section of the Dealer Manager Agreement filed as Exhibit h to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:
<TABLE>
<CAPTION>
SEC Registration fees............................................................
<S> <C>
Stock Exchange listing fees......................................................
NASD Fees........................................................................
Printing (other than stock certificates) and related delivery expenses...........
Engraving and printing stock certificates........................................
Dealer Manager expense reimbursement.............................................
Fees and expenses of qualification under state securities laws (including fees of
counsel).........................................................................
Accounting fees and expenses.....................................................
Legal fees and expenses..........................................................
Travel and related out-of-pocket expenses and miscellaneous......................
--------
TOTAL........................................................................ $
--------
--------
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.01 per share: record holders as of ,
1995.
C-2
<PAGE>
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland, the
state in which the Fund is organized, empowers a corporation, subject to certain
limitations, to indemnify its directors, officers, employees and agents against
expenses (including attorneys' fees, judgments, penalties, fines and
settlements) actually and reasonably incurred by them in connection with any
suit or proceeding to which they are a party so long as they acted in good faith
or without active and deliberate dishonesty, or they received no actual improper
personal benefit in money, property or services, or, with respect to any
criminal proceeding, so long as they had no reasonable cause to believe their
conduct to have been unlawful.
Article Twelve of the Fund's Articles of Amendment and Restatement provides
that the Fund shall have the power to obligate itself to indemnify its currently
acting and former directors and officers to the maximum extent permitted by the
Maryland General Corporation Law. The Fund may, with the approval of its Board
of Directors, provide such indemnification and advancement of expenses to
directors, officers, employees and agents of the Fund or a predecessor of the
Fund.
Section 10.1 of the Fund's Bylaws indemnifies current or former directors
and officers of the Fund to the maximum extent permitted by the 1940 Act, the
Securities Act and under Maryland law in effect from time to time. The Fund may,
with the approval of its Board of Directors, provide such indemnification and
advancement of expenses to directors, officers, employees and agents of the Fund
or a predecessor of the Fund. In addition, the Fund may purchase insurance on
behalf of any director, officer, employee or agent of the Fund with respect to
certain liabilities.
In addition, the directors, officers, employees and agents of the Fund who
are also directors, officers, employees or agents of the Investment Adviser or
its affiliates are entitled to indemnification from either the Investment
Adviser or such affiliates, as the case may be.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers and controlling persons of the Fund,
pursuant to the foregoing provisions or otherwise, the Fund has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in connection with any successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Fund will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Information as to the directors and officers of the Investment Adviser is
included in its Form ADV, File No. 801-15834, filed with the Commission and is
incorporated herein by reference thereto.
C-3
<PAGE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder will be
maintained by the Administrator, Princeton Administrators L.P., 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. Records relating to the duties of the
Fund's custodian will be maintained by The Chase Manhattan Bank, N.A., Global
Custody Division, Chase MetroTech Center, Brooklyn, New York 11245, and those
relating to the duties of the transfer agent will be maintained by State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Fund undertakes to suspend offering of the Shares covered hereby
until it amends its prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, the Fund's net asset per share
declines more than 10 percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in the prospectus
contained herein.
(b) The Fund hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1994;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
and
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The Fund hereby undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Fund has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the day of
, 1996.
SCHRODER ASIAN GROWTH FUND, INC.
(THE FUND)
By
*
...................................
I. Peter Sedgwick
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
* Chairman of the Board , 1996
...................................... (Principal Executive
I. Peter Sedgwick Officer)
and Director
* Treasurer (Principal , 1996
...................................... Financial
Robert Jackowitz and Accounting Officer)
* Director , 1996
......................................
David M. Salisbury
* Director and President , 1996
......................................
Laura E. Luckyn-Malone
* Director , 1996
......................................
Peter E. Guernsey
* Director , 1996
......................................
John I. Howell
* Director , 1996
......................................
William L. Means
...................................... Director , 1996
Madelon DeVoe Talley
*By: /s/ CATHERINE A. MAZZA
..................................
Catherine A. Mazza,
Attorney-in-Fact
</TABLE>
C-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
- - ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
a Articles of Incorporation as of November 5, 1993. Incorporated by
reference to Exhibit 2(a)(i) to the Fund's Registration Statement on Form
N-2 (No. 33-71394) (the "Registration Statement") filed with the
Commission on November 8, 1993.
b Bylaws. Incorporated by reference to Exhibit 2(b)(i) to the Registration
Statement.
c Not applicable.
d (i) Specimen certificate representing shares of Common Stock, par value
$.01 per share. Incorporated by reference to Exhibit 2(d) to Amendment
No. 1 to the Fund's Registration Statement.
(ii) Form of Subscription Certificate.+
(iii) Form of Notice of Guaranteed Delivery.+
(iv) Form of DTC Participant Over-Subscription Form.+
e Dividend Reinvestment Plan. (Incorporated by reference to Exhibit 2(e) to
Amendment No. 2 to the Registration Statement ("Amendment No. 2").)
f Not applicable.
g Investment Advisory Agreement, dated December 21, 1993, between the Fund
and the Investment Adviser. (Incorporated by reference to Exhibit 2(g) to
Amendment No. 2.)
h Form of Dealer-Manager Agreement (including form of Soliciting Dealer
Agreement as Exhibit A).+
i Not applicable.
j (i) Custodian Agreement, dated December 16, 1993 between the Fund and the
Custodian. (Incorporated by reference to Exhibit 2(j)(i) to Amendment No.
2).
(ii) Fee Schedule relating to the Custodian Agreement. (Incorporated by
reference to Exhibit 2(j)(ii) to Amendment No. 2.)
(iii) Form of Subcustodian Agreement. (Incorporated by reference to
Exhibit 2(j)(iii) to Amendment No. 2.)
k (i) Form of Administration Agreement between the Fund and the
Administrator. (Incorporated by reference to Exhibit 2(k)(i) to Amendment
No. 2.)
(ii) Registrar, Transfer Agency and Services Agreement, dated December
16, 1993, between the Fund and State Street Bank & Trust Company.
(Incorporated by reference to Exhibit 2(k)(ii) to Amendment No. 2.)
(iii) Form of Subscription Agent Agreement.+
(iv) Form of Information Agent Agreement.+
l Opinion of Debevoise & Plimpton and consent to use the same.+
m Not applicable.
n Consent of Coopers & Lybrand L.L.P..
o Not applicable.
p Not applicable.
q Not applicable.
r Financial Data Schedule.
Other Exhibit: Powers of Attorney.
</TABLE>
- - ------------
+ To be filed by amendment.
EXHIBIT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ I. PETER SEDGWICK
.....................................
I. Peter Sedgwick
Date: February 13, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ ROBERT JACKOWITZ
.....................................
Robert Jackowitz
Date: February 15, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the
<PAGE>
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ DAVID M. SALISBURY
.....................................
David M. Salisbury
Date: February 12, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ LAURA E. LUCKYN-MALONE
.....................................
Laura E. Luckyn-Malone
Date: February 20, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ PETER E. GUERNSEY
.....................................
Peter E. Guernsey
Date: February 12, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ JOHN I. HOWELL
.....................................
John I. Howell
Date: February 9, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ WILLIAM L. MEANS
.....................................
William L. Means
Date: February 12, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer
of the Schroder Asian Growth Fund, Inc. constitutes and appoints Catherine A.
Mazza and Marcia L. MacHarg, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign a Registration Statement on Form N-2 and any or all
amendments, including post-effective amendments, and supplements to such
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and
<PAGE>
about the premises, could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
.....................................
Madelon DeVoe Talley
Date:
[Coopers & Lybrand L.L.P. letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 3 to the
Registration Statement No. 811-8150 on Form N-2 of our report dated December 15,
1995 on our audits of the financial statements and financial highlights of
Schroder Asian Growth Fund Inc. We also consent to the reference to our firm in
the Prospectus under the Caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
February 22, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
[ ] AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH [ ]
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 232,919,702
<INVESTMENTS-AT-VALUE> 240,547,532
<RECEIVABLES> 197,808
<ASSETS-OTHER> 8,145,946
<OTHER-ITEMS-ASSETS> 380,126
<TOTAL-ASSETS> 249,271,412
<PAYABLE-FOR-SECURITIES> 1,286,803
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 497,485
<TOTAL-LIABILITIES> 1,784,288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 271,680,941
<SHARES-COMMON-STOCK> 19,607,100
<SHARES-COMMON-PRIOR> 19,607,100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (32,064,584)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,870,767
<NET-ASSETS> 247,487,124
<DIVIDEND-INCOME> 3,697,277
<INTEREST-INCOME> 694,898
<OTHER-INCOME> 0
<EXPENSES-NET> 4,096,237
<NET-INVESTMENT-INCOME> 295,938
<REALIZED-GAINS-CURRENT> (29,229,803)
<APPREC-INCREASE-CURRENT> 5,001,661
<NET-CHANGE-FROM-OPS> (23,932,204)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (23,932,204)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,016,095)
<GROSS-ADVISORY-FEES> 2,479,442
<INTEREST-EXPENSE> 1,345
<GROSS-EXPENSE> 4,096,237
<AVERAGE-NET-ASSETS> 247,944
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
